The Jewish Home party's schism posed no immediate threat to Netanyahu, for whom polls predict an easy win to a fifth term. But it suggested his fellow rightists were interested in poaching votes from a centre-left opposition energised by the candidacy of an Israeli ex-general, Benny Gantz.
The Jewish Home leader, Education Minister Naftali Bennett, told reporters that he and his deputy, Justice Minister Ayelet Shaked, were leaving to form "a new party, of religious and secular together ... in true partnership".
The party, "New Right", would, like Jewish Home, pursue hawkish security policies including opposition to a Palestinian state, Bennett said.
It was not immediately clear whether Jewish Home was also continuing as a party.
Jewish Home, which has drawn on support from Israeli settlers in the occupied West Bank, had eight of parliament's 120 seats.
Prior to Bennett's announcement, polls had predicted the party would take around the same number in the April 9 vote, trailing Netanyahu's right-wing Likud party and at least three centre-left parties.
Bennett has frequently locked horns with Netanyahu, accusing the prime minister of being too restrained in Gaza fighting.
After Bennett's announcement, Likud issued a statement saying that only by voting for it would right wingers "guarantee that the next government ... will not be a left-wing government". (Writing by Dan Williams; Editing by Alison Williams)
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