The ministry instructed the fund for a second time to exclude Africa Israel Investments and its construction subsidiary Danya Cebus from its investments and also said it should not invest in Sesa Sterlite - India's biggest zinc and aluminium maker.
After the decision, 63 firms stand on the exclusion list, including some of the world's biggest miners, tobacco producers and makers of certain weapons such as cluster bombs.
Separately, the finance ministry said it would now allow the wealth fund to buy sovereign bonds issued by Myanmar, after the lifting of international sanctions on the Asian country.
But the fund is now barred from buying sovereign bonds issued by North Korea, Syria and Iran, although none of these countries currently issues sovereign bonds.
Africa Israel Investments and Danya Cebus were first excluded from the fund in 2010 because they were involved in the building of Israeli settlements in the West Bank but the ban was lifted last August.
The government reinstated the exclusion "due to contribution to serious violations of individual rights in war or conflict through the construction of settlements in East Jerusalem", it said in a statement.
Many countries deem Israel's settlements illegal and an obstacle to peacemaking.
Africa Israel Investments and Danya Cebus were not immediately available for comment.
Sesa Sterlite, a subsidiary of mining conglomerate Vedanta Resources, was also excluded as Vedanta's "relevant operations in India, which are run through the company Sesa Sterlite, present an unacceptable risk of environmental damage and serious violations of human rights".
Sesa Sterlite was not immediately available for comment.
Vedanta was itself excluded from the fund's investment portfolio in 2007.
"The fund runs an unacceptable risk of contributing to severe environmental damages and serious or systematic violations of human rights by continuing to invest in the company," the ministry said when it excluded Vedanta.
The fund, which invests Norway's surplus oil revenues, is not allowed to invest in firms involved in severe environmental damage, "serious and systematic human rights violation", such as forced labour, the worst forms of child labour, murder or torture.
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