The European Council has warned companies they could face "legal, economic and reputational consequences" if they involve themselves with East 1 (East 1) settlement construction in the Israeli-occupied West Bank.
The major intervention on Friday, from the body that determines the European Union's political direction, came just days before the 19 October deadline for bids in one of the E1 settlement construction tenders.
The Israeli government's E1 settlement plan involves building thousands of new housing units between Jerusalem and the existing West Bank settlement of Maale Adumim, 7km east of the city.
It aims to connect settlements in the West Bank with occupied East Jerusalem and would effectively cut the West Bank in half, making a Palestinian state unviable.
The European Council urged "Israel to immediately reverse the expansion of settlements, which are illegal under international law, including by withdrawing its tender for construction in the E1 area".
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The council added "that businesses should not bid for construction contracts for E1 or other settlement developments and underlines the legal, economic and reputational consequences for businesses and financial institutions participating in settlement construction, including the risk of serious breaches of international law".
Conclusions published by the council are endorsed by the leaders of all EU member states.
The council's warning came after Britain's sanctions on Israeli settlements, which include sanctions on bodies involved in financing settlement construction, came into effect earlier this week.
Haaretz reported last week that Israeli banks feared they could be adversely affected by the UK's sanctions.
Middle East Eye has reported extensively on the links between UK-based businesses and charities and settlement projects in occupied East Jerusalem and the West Bank.
Earlier this month, Israel's attorney general ordered that the announcement of the winning bidders be postponed until after the upcoming Israeli general election.
The deadline for bids for one of the E1 tenders is next Monday, while bidding for another is scheduled to open on 25 October and for a third in November.
'We should have the same principled stand'
The EU has previously warned that the E1 project fundamentally undermines the prospects for a two-state solution.
Meanwhile, settler attacks on Palestinians are increasing.
On Saturday, the United Nations Office for the Coordination of Humanitarian Affairs (Ocha) said that nearly 200 settler attacks linked to the olive harvest in the West Bank had caused casualties or property damage so far this year.
Video footage circulated online this week showed Washington Post journalist Heidi Levine being knocked to the ground and repeatedly beaten by settlers with sticks.
The EU's foreign policy chief, Kaja Kallas, said last month that the EU should treat illegal Israeli settlements in the occupied Palestinian territories in the same way as it treated Russia’s occupation of Crimea.
“The question is what do we do about this? If we take the example when Crimea was occupied, then it was very clear, it’s illegal, we don’t recognise this, which means that we stop the trade with any products that come from Crimea,” Kallas said.
“We should have the same principled stance - you know this is illegal, everybody agrees - so we should stop trading with occupied [Palestinian] Territories,” she argued.
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