The issue picked up steam in recent weeks following President Donald Trump's recognition of Jerusalem as Israel's capital and expression of plans to move the U.S. embassy to that city.
The ANC said their move would "send a clear message to Israel that there is a price to pay for its human rights abuses and violations of global law".
Hashem Dajani, Palestine's ambassador in Pretoria, described the move as "an important decision".
The activist group, South African Jews for a Free Palestine (SAJFP), said: "the downgrade was a practical step towards a just peace".
The ANC has a long history of anti-Israel action.
"The process of changing the ownership structure of the Sarb at this point in time could raise the level of risk and uncertainty for the country in both a financial and economic policy sense", the central bank said in a statement on its website on Thursday.More news: North Korea reportedly testing biological weapon for anthrax missile deployment
More news: This self-healing phone screen could mean no more shattered iPhones
More news: WWE history in Philly: Women's Royal Rumble match announced
South Africa's ruling party has ratified a proposal for the state rather than private shareholders to own the central bank. It is also a downgrade of support for the local Jewish community and a folded hand on the Israeli-Palestinian conflict.
The Reserve Bank's investors have no say over its policy or the appointment of the governor, but do vote to select seven of the 10 non-executive directors.
The statement added that "the broad presence of Hamas - a terrorist organization which actively calls for the destruction of Israel - at the Elective Conference and its extensive lobbying efforts supports this view".
Separately, the move angered the South African Board of Jewish Deputies and South African Zionist Federation.
The ANC, Africa's oldest liberation movement, which benefited from boycotts and sanctions against Apartheid South Africa, has provided direction and we look forward to others following suit.