The Press Complaints Commission has backed the Guardian after the newspaper refused to acknowledge Jerusalem as Israel’s capital.

A picture of passengers on the city’s light railway observing a minute’s silence during the country’s Holocaust Memorial Day appeared in the Guardian’s centre pages, and on its website, last month.

The caption alongside the picture initially referred to the city as Israel’s capital, prompting a later “correction”.

The paper noted that the caption “wrongly referred to the city as the Israeli capital. The Guardian style guide states: ‘Jerusalem is not the capital of Israel; Tel Aviv is’”.

Media-monitoring group HonestReporting complained to the PCC, claiming that the Guardian had breached the regulatory body’s clause on accuracy.

The PCC rejected the claim. In its ruling it briefly outlined the UK Foreign Office’s guidance on the issue, which recognises that Israel “maintains that Jerusalem is its capital city, a claim not recognised by the UK and the international community”, but stops short of designating Tel Aviv as the capital.

But the PCC went on to conclude: “The Commission was of the view that the newspaper was entitled to refer to Tel Aviv as the capital of Israel. There was no breach of the code in this instance.”

HonestReporting said the ruling was “astonishing and outrageous”.

A spokesman for the organisation said: “Aside from a sovereign state’s right to determine its own capital, international convention maintains that a capital city is usually where a state’s central political institutions reside.

“We believe that this flawed ruling has the potential to further delegitimise Jerusalem’s status as Israel’s capital, giving the British media carte blanche to follow the Guardian’s lead.”

Joe Hyams, HonestReporting chief executive, added: “This ruling is an absolute outrage. The PCC’s role is to maintain standards of media accuracy, not to make political and politicised rulings.

“What mandate does the PCC have in deciding that the location of foreign embassies determines a host nation’s capital status?”

Amir Ofek, press attaché at the Israeli embassy in London, said: “Jerusalem was the capital of ancient Israel long before London was the capital of England. It remains the capital of Israel today, and the home of Israel’s legislature, government and Supreme Court.

“This is something that the PCC has failed to understand.

“For the Guardian to reject Israel’s determination of its own capital flies in the face of history.

“For it to go further and insist that Israel’s capital is Tel Aviv is presumptuous and unfounded.”