One of Britain's largest supermarket chains is to boycott all companies which source produce from Israeli settlements in the West Bank.

The Co-operative movement, which has refused to stock products from the settlements since 2009, this week took the decision to extend its policy and will now bar engagement with any Israeli suppliers known to work with the settlements.

But the JC can reveal that at least two of the four companies with which the Co-op is now refusing to do business - Arava Export Growers and Mehadrin - had no contracts to sell produce to the UK group before the boycott.

Mehadrin's Rami Hesel said: "We were not dealing with the Co-op, even before the boycott. We had no business with them and didn't sell them anything. For us it is irrelevant.

"We have many Arab workers with us in the fields and packing houses. There are families who have been with us for many years. Any attempt to harm us harms the Palestinians, too."

Malou Even, Arava's vice-president for global sales, said the company was unlikely to be affected by the Co-op decision.

The four named companies - including Agrexco and Adafresh - largely work as collectives, exporting Israeli fruit, vegetables and herbs around the world.

It is thought Co-op managers made the move as a compromise and in an attempt to diffuse proposals for a full boycott of all Israeli products, due to be voted on by Co-op members at regional meetings on May 12 and 13 and backed by the Palestine Solidarity Campaign. Motions are still expected to be put forward at four of those meetings.

The Co-op, the fifth biggest food retailer in the country, is thought to be the first major supermarket group in Europe to implement such a boycott.

Jewish community leaders held discussions with Co-op bosses before this week's announcement and encouraged grass-roots supporters of Israel to contact their regional representatives to campaign against the move.

The Fair Play Campaign Group works to combat boycotts. A spokesman said: "This extension is significantly less than the full boycott of Israel sought by the PSC. But the Co-op has not fully understood the Jewish community's serious concerns with an ever-increasing slippery-slope boycott policy."

A Co-op spokeswoman said the extension of the policy would "cover engagement with any produce suppliers known to be sourcing from the Israeli settlements, where there is broad international consensus that the settlements are illegal.

"However, the group will continue to trade with Israeli suppliers that do not source from the settlements, and currently has supply agreements with some 20 Israeli businesses, a number of which may benefit from a transfer of trade.

"The group will also continue to actively work to increase trade links with Palestinian businesses in the occupied territories."

Hilary Smith, co-ordinator of the Boycott Israel Network and a leading anti-Israel activist, called the Co-op decision "historic" and urged other retailers to take similar action against Israel.