Culture Secretary Sajid Javid has said in a letter to UK Jewish Film Festival chair Stephen Margolis that the Tricycle Theatre's boycott is "misguided".
Mr Javid, a long-time supporter of Conservative Friends of Israel, also told the JC: "I am concerned about the impact of its decision."
His remarks were echoed by Finchley and Golders Green MP Mike Freer, who described the move as "daft and misguided. Because of all the bad publicity the Tricycle's received, it will make other theatres think twice."
The JC understands there were talks held between the UKJFF and Tricycle earlier this week to attempt to resolve the issue, although they are believed to have broken down.
A number of donors have withdrawn their support. Sir Trevor Chinn is believed to have withdrawn his donations.
Allan Morgenthau has resigned from the Tricycle's development committee and withdrawn donations to the theatre from the Diana and Allan Morgenthau Charitable Trust.
Mr Morgenthau, the former chair of the London Jewish Cultural Centre, said: "I was totally and utterly surprised by what the Tricycle did. It's a terribly misplaced decision.
"I don't think there was malice intended but the Tricycle must be judged by its deed.
"If they change their mind, the Jewish community will forgive them. It's very, very sad."
Jewish Book Week Chair Gail Sandler and Celia Atkin, of the Atkin Charitable Foundation, are also believed to have withdrawn their support.
Human Rights lawyer Adam Wagner said: "The Tricycle is skating on thin ice, legally speaking. This is at least arguably discrimination under the Equality Act 2010".
A spokeswoman for the Charity Commission said complaints had been received about the Tricycle. "We are assessing the concerns to determine whether there is a regulatory role for us," she said.
Tricycle chairman Jonathan Levy refused to comment on developments, although he denied he would resign: "I can categorically tell you that is not the case."
Last Thursday, more than 250 people gathered outside the Tricycle to protest at the boycott. Protestors held up placards that read "don't punish London's Jews". Many said the Tricycle's ultimatum was "antisemitic" and vowed to never return to the theatre.
Nicole Ray, a grandmother from Borehamwood in Hertfordshire, said: "I don't want the Tricycle to think that they can get away with it. I would have been devastated if the UKJFF gave in."
The UKJFF will now be screened at more than 10 venues, including Arthouse Crouch End, Barbican, BFI Southbank, Cine Lumiere, Everyman, JW3, Odeon Swiss Cottage, Odeon South Woodford, Phoenix, East Finchley, all in London, and the Cornerhouse in Manchester and Broadway in Nottingham.