The Claims Conference, the international body which distributes restitution money to Holocaust survivors, is being sued in Israel by two families who say they have been denied compensation for properties seized in Nazi Germany.

Tel Aviv lawyers Heskia-Hacmun, who are handling the lawsuit, are also asking to hear from other families abroad who believe they may have similar claims.

The case concerns properties and other assets that were appropriated by the Nazis or sold under duress by their owners in East Berlin.

After the reunification of Germany, its government offered to pay restitution or return properties to the heirs of the owners.

Where no heirs were found, the assets or compensation went instead to the New York-based Claims Conference, which has used the money mainly to help needy survivors across the world.

The conference set a deadline for 2004 for new claims but has faced criticism that it has not done enough to trace heirs. Two years ago, the Board of Deputies urged the conference to rethink following a report commissioned by the Board from London barrister Jeffrey Gruder. The Gruder report has been now cited by Heskia-Hacmun.

The lawyers, acting for the heirs of Leopold Liechtenstein and Herman Engel, allege that the conference “did not try to locate the heirs” of the two families or return any assets to them.

Mr Engel, who owned two properties in Berlin, died in Israel in 1953, three years after his son Shlomo, leaving a grandson, Gavriel Moses, aged nine, according to the lawyers. The now Professor Moses did not learn of his grandfather’s properties until last year.

Heskia-Hacmun say their clients “seek to correct a historical injustice that is manifested in material wrongdoing that has no legal grounds”.

The compensation sought could amount to hundreds of thousands of pounds.

The Gruder Report, the lawyers say, “should have brought the conference to respect the plaintiffs’ basic rights and to prefer the return of the assets to them over depriving them from their rights”.

The Claims Conference has allocated more than £600 million from the sale of East German assets to survivors’ welfare.