The Israel-based team were scheduled to compete in a competition with four other international teams and six South African provinces from next month. However, they were advised on Friday that the invitation had been withdrawn.
The Mexican Rhinos have been earmarked to replace them, pending approval by SA Rugby's General Council.
“We have listened to the opinions of important stakeholder groups and have taken this decision to avoid the likelihood of the competition becoming a source of division, notwithstanding the fact that Israel Is a full member of World Rugby and the IOC,” said Mr Mark Alexander, president of the South African Rugby Union.
The Mzansi Challenge kicks off on 24 March with the Diables (Spain), Simbas (Kenya), Windhoek Draught Welwitschias (Namibia), and Goshawks (Zimbabwe) joining South African provinces, Leopards, Valke, Boland Kavaliers, Eastern Province, Border Bulldogs, and SWD Eagles.
An adjusted fixture list will be issued in due course.