Israel has said it is suspending contact with EU officials involved in peace efforts with the Palestinians, BBC News reports.

The move follows the bloc's decision to label goods from Jewish settlements in the West Bank.

Prime Minister Benjamin Netanyahu "ordered suspension of diplomatic contacts with the institutions of the European Union on this issue", a foreign ministry statement said.

The EU says the settlements are illegal, but Israel disputes this.

Netanyahu, who is also the foreign minister, told the ministry to carry out "a reassessment of the involvement of EU bodies in everything that is connected to the diplomatic process with the Palestinians", the statement said.

Just over two weeks ago the European Commission issued new guidelines for the labelling of some products made in Israeli settlements on occupied Palestinian and Syrian land.

The guidelines stipulate that agricultural produce and cosmetics sold in EU member states must have clear labels showing their place of origin.

The EU considers settlements built on territories occupied by Israel in 1967 to be illegal under international law, but Israel disputes this position.

The EU says settlements constitute an obstacle to peace and threaten to make a two-state solution to the Israeli-Palestinian conflict impossible.