He told cheering followers that the minister should be "wiped off the face of the earth" and described him as "Satan".
Rabbi Ovadia Yosef - the spiritual head of the ultra-Orthodox Shas Party - is to be investigated by police under Israel's terrorism laws on suspicion of incitement to violence against a political adversary.
The rabbi triggered a political storm on 18 March when he attacked Education Minister Yossi Sarid for proposing that the works of a Palestinian writer be included in the school curriculum.
He told cheering followers that the minister should be "wiped off the face of the earth" and described him as "Satan".
Although he later said he did not intend to condone violence, he delivered a similar outburst the following week, branding Mr Sarid of the left-wing Meretz Party a racist.
Attorney-General Elyakim Rubinstein told reporters on Monday there was no indication that Rabbi Yosef had retracted his remarks.
He said he would also be investigated for insulting a public official and for defamation.
Furore
Shas, the country's third largest party with 17 MPs, said in a statement that its main religious body, the Council of Torah Sages, would meet to determine its future in the coalition.
Its leaders accused the attorney-general of discriminating against Sephardic Jews like themselves whose origins are in Arab countries.
"The things he said are racist," Health Minister Shlomo Benizri of Shas told a news conference. "They are making us feel like second, third, fourth class citizens."
Rabbi Yosef's comments shocked many Israelis. Cabinet ministers and parliamentarians warned that they could be interpreted by followers as a call to murder.
Its departure would leave his nine-month-old government with a minority in the 120-member parliament or Knesset, at a time when he needs to muster support for his programme.
He issued a statement saying that the legal establishment must be allowed to uphold the law as it sees fit, and calling for an end to internal bickering.
A fortnight ago his government narrowly survived a no-confidence motion over its decision to include works by the Palestinian poet in question - Mahmoud Darwish - in the school curriculum.