The Israeli government has accused Britain of encouraging a boycott of goods from West Bank settlements.

The two countries are locked in a diplomatic row after the British government released new guidelines for supermarkets on labelling of foods from settlements and products made by Palestinians.

The Department for the Environment, Food and Rural Affairs (Defra) has issued voluntary guidance to UK stores stating that labels should differentiate between “Israeli settlement produce” and “Palestinian produce”. Currently, foods are labeled “Produce of the West Bank”.

Yigal Palmor, Israel’s foreign ministry spokesman, said the Jewish state was being singled out. The move was, he said, a “matter of concern” and would be seized upon by pro-boycott campaigners.

He said: “It looks like it is catering to the demands of those whose ultimate goal is the boycott of Israeli products.”

The Foreign Office said that it opposed a boycott of Israel, but added that consumers should be able to “choose for themselves what they buy. We have been very clear both in public and in private that settlements are illegal and an obstacle to peace.”

Representatives of the Yesha Council, which represents settler communities, said the move was a “hostile step”.

The EU stipulates that labels must distinguish between goods which originate in Israel and those from Palestinian territories.

British stores including Waitrose, John Lewis and Sainsbury’s sell a range of goods including vegetables, pharmaceuticals and textiles which are regularly targeted by anti-Israel protesters and those backing a boycott.