An Israeli army plan announced on Sunday suggests the air force cut back on flights and defensive systems, in the face of sharp budget cuts.

Army officials explained that a 3.7-billion-U.S. dollar gap between the 2012 defense budget and the annual army funding plan, will also cause other significant security cuts, including postponing production of the Iron Dome and David's Sling anti- rockets systems.

"These are hard steps which will immediately affect our war readiness," a senior army official told the Haaretz daily.

"The government is aware of the severity of the situation, but has yet to respond to our demands for reducing the budget gaps," he said.

Further army projects that might be affected in the future by the budget cuts include a halt to purchases from Israel's military industries, including the army's chief Merkava battle tank, as well as a significant cut in reserves training.

Budget disputes between the Defense Ministry and the Finance Ministry arose some months ago, after the publication of the Trajtenberg report's recommendations on social welfare reform, which came after large-scale social protests in the summer of 2011.

While one of the major recommendations in the report, which was adopted by the government, was to cut 3 billion shekels (800 million dollars) off the defense budget and to allocate the funds to the reforms, the Defense Ministry strongly objected claiming it was an irresponsible act in a time of regional instability.

Although the defense establishment eventually succeeded in canceling the budget cuts, army officials claimed that due to other unexpected expenses, such as building the anti-infiltration barrier along the Egyptian border, a budget gap was created.

The link between the social demonstrations to the army's budget was strengthened last week by Brig. Gen. Aharon Haliva, commander of a classified reserves unit.

In a closed briefing, Haliva slammed his soldiers for participating in the demonstrations, blaming them for the budget cuts.

"Now we don't have enough funds to fire rockets," Haliva said, according to Israel Defense magazine.

The multi-million-dollar Iron Dome is a short-range system designed to intercept projectiles in mid-flight. Israel currently has three batteries deployed around the country, but the budget cuts are now threatening to cancel the purchase of a fourth such battery.