Finance Minister Yair Lapid temporarily cut funding from all yeshivot on Thursday, after discovering that funds were still trickling though to students who refused to serve.
On Tuesday, the High Court of Justice ruled that the state should hold back funds from ultra-Orthodox students aged 18-21 who dodged their draft notices.
That night, Lapid halted funding, but the following day, the Treasury discovered that the monies had continued to make their way to sanctioned students.
After an urgent consultation, Lapid ordered that all yeshiva funds be frozen until the Education and Defense Ministries could sort out precisely which yeshiva students were meant to be blacklisted, saying the action was necessary to comply with the High Court's decisions.
The government bill for drafting haredi men into national service is still in the committee stage, and no agreement has been reached between Yesh Atid and Bayit Yehudi on how to punish those refusing to enlist, the central clause of the bill.
Yesh Atid is insisting that the Security Services Law, which provides for imprisonment of up to two years for anyone refusing to serve, be applicable to haredi men as it is to all other Jewish men of military age.
Bayit Yehudi says, however, that such a stance will antagonize the haredi leadership and general public, and is therefore insisting that economic sanctions alone be stipulated in the bill as a negative incentive to increase enlistment.
Various compromises have been floated, including the possibility that criminal sanctions will be imposed only several years after the bill comes into effect, but an agreement has yet to be reached.
Gil Hoffman and Jeremy Sharon contributed to this report.