Israelis poured into streets across the Jewish state in unprecedented numbers, with police counting over a quarter of a million people joining protests calling for sweeping economic reforms.

Police spokesman Micky Rosenfeld said at least 200,000 people joined demonstrations in the Israeli city of Tel Aviv alone, with another 30,000 demonstrating in Jerusalem and over 20,000 taking part in protests elsewhere.

"Our numbers are more than 250,000 people across the country," he told AFP around midnight local time.

Israeli media put the number of protesters closer to 300,000, but even with the final turnout unclear, the protests seemed to far eclipse any previous demonstrations over social issues in the history of the Jewish state.

Organisers and participants sounded a triumphant note, saying they had achieved their goal of drawing a "critical mass" of protesters into the streets.

"Mission accomplished. There are many, many more of us than last week," 45-year-old Rachel Atar, an electrical engineer, told AFP.

Edith Cohen, 65, marching with the massive crowds in Tel Aviv said the numbers showed that "the middle classes have finally realised their power."

The demonstrations nationwide, from the northern town of Kiryat Shmona, near the Lebanese border, to southern cities in the Negev desert, showed the power of a movement that began in mid-July to protest the cost of housing.

Young activists set up a tent city in one of Tel Aviv's trendiest neighbourhoods to publicise their inability to afford homes but quickly found themselves joined by protesters angry about a range of cost-of-living issues.

The movement has since mushroomed into a full-blown social uprising calling for across-the-board reforms to ease the cost of living and reduce Israel's income disparity.

In the week leading up Saturday's demonstration, media reports suggested the diverse movement, bringing together discharged soldiers, students, young families and even the ultra-Orthodox, could be in danger of fracturing.

But the Saturday numbers appeared to show just how deep economic dissatisfaction runs in this country of 7.7 million people.

Protesters, many waving Israeli flags or the red flag of the labour movement which has thrown its support behind the demonstrations, carried signs reading "the people demand social justice" and "the people against the government."

And they paid homage to the uprisings taking place across the Arab world, waving banners reading "This is Egypt" and making reference to Cairo's Tahrir Square, where Egyptian protesters gathered during their uprising.

In Tel Aviv, the demonstration began around 1800 GMT from a tent camp, with protesters heading toward the defence ministry and other government buildings.

In Jerusalem, demonstrators gathered in the city centre before marching to the residence of Prime Minister Benjamin Netanyahu.

Organisers are hoping to show Netanyahu that the movement will not lose steam despite his attempts to placate demonstrators by setting up a ministerial committee to examine their demands and pledging change.

Netanyahu has so far shied away from the sort of sweeping reforms that protesters are calling for, and he has explicitly warned against costly measures that he says could plunge Israel into a financial crisis.

But his promise to look into protesters' demands has found little favour with demonstrators who are also outraged at his government's decision to pass legislation streamlining the building process for contractors.

Netanyahu says the legislation, passed before the Israeli Knesset broke for its summer recess this week, will address protester demands by flooding the market with housing and bringing down prices.

But activists say it will merely encourage the construction of luxury apartments, and environmental groups claim the law will make it easier for contractors to evade environmental regulations.

Protesters have also now expanded their demands beyond a reduction in the cost of housing, and are also seeking reforms to the cost of living as a whole, including education, taxes, childcare and medical costs.

Uri Metuki, a protest leader, makes no secret of the fact that he expects "the battle will be long."

"We are trying to change nothing more and nothing less than a whole system that privileges the interests of the individual to the detriment of the collective interest," he said.