The National Salvation Front (NSF), an alliance of liberal and leftist opposition parties, said the draft law submitted to the Shura Council, which for now has legislative powers, was more restrictive than laws under deposed leader Hosni Mubarak.
The NSF said in a statement that the bill "seeks to reproduce a police state by putting into law the role of security bodies in overseeing the work of civil society groups."
Human rights groups have also criticised the law, which stipulates that non-governmental groups (NGOs) must be vetted by a committee partly drawn from the security services and must get official permission to receive funds from abroad.
"This can allow these entities to refuse funding for rights groups that monitor elections or work to fight torture ... there is an insistent position by the ruling regime driven by lack of political will to take any reform initiative towards democracy and respect for human rights," the NSF statement said.
Under Mubarak, NGOs ran into trouble over funding by Western countries and such constraints have continued after his fall.
Mokhtar al-Ashry, head of the legal committee of the Brotherhood's Freedom and Justice Party, told Reuters the bill would ensure freedom for NGOs and that the security apparatus would provide only one of nine members on the committee overseeing their activities and funding. Asked why any security official should play such a role, Ashry ended the conversation.
Earlier this month, U.N. human rights chief Navi Pillay said the draft law risked betraying the ideals of Egypt's 2011 revolution and said governments restricting civil society work "risk slipping quickly into authoritarianism".
The NSF said it would back another bill drafted by a coalition of 50 civil society groups.