The Government has said the views of Alan Duncan, Minister for International Development, who described the Israeli security wall as a "land-grab" and claimed Israelis deliberately take water away from Palestinians, reflects its position.
Mr Duncan makes the comments in a video used on the Department for International Development's (DfID) website to illustrate its new four-year plan to support Palestinians.
He says: "The wall is a land-grab. It hasn't just gone along the lines of the proper Israeli boundary. It's taken in open land which actually belongs to Palestine. So that's not a security wall, that's a perimeter wall trying to annex land that does not belong to Israel."
He was filmed during a visit to the West Bank earlier this year where he signed an agreement with Palestinian Prime Minister Salam Fayyad.
Mr Duncan adds: "Let me give you the real picture of what settlement activity amounts to. Israeli settlers can build what they want and then immediately get the infrastructure so that takes the water deliberately away from Palestinians here. The Israelis can build and this is not their country, but the Palestinians, whose country this is, cannot build."
Andrew Balcombe, of the British Israel Group, said: "We think it is appalling that a minister of the British government is the featured speaker in a one-sided video that is inaccurate and inflammatory."
Alan Aziz, executive director of the Zionist Federation, said: "Mr Duncan is presenting a one-sided account that is not just inaccurate, but openly biased. It has no place on an official Government website."
Stuart Polak, director of Conservative Friends of Israel, said: "CFI raised this at the highest levels of government immediately after the video was posted.
"We were assured that this was not government policy and no Foreign Office minister would concur with these assessments.
"I would seriously question on what authority the DfID minister has raised these issues as policy and why this video is still available to view."
But a DfID spokesman said the views "reflected" those of the government.
He said: "Mr Duncan was speaking during a visit to the West Bank. His comments reflect the consistently held government position that settlements are illegal and are an obstacle to peace and the two-state solution."
When asked specifically about his comments on the security wall and water theft, another spokesman said: "He is a government minister and speaks on behalf of the government."
A spokesman from the Foreign Office said that DfID's line "is the government's position".