Israel's Prime Minister Benjamin Netanyahu has asked the Foreign Ministry to suspend contacts with the European Union (EU) over the Israel-Palestinian peace process due to the 28-nation bloc's decision to start labelling goods exported from Israeli settlements in the West Bank.

Netanyahu has demanded the holding of "a reassessment of the involvement of EU bodies in everything that is connected to the diplomatic process with the Palestinians," an official statement from the ministry said on Sunday, 29 November.

"Until completion of the reassessment, the Prime Minister has ordered a suspension of diplomatic contacts with the EU and its representative in this matter," the statement added, reported.

The EU formulated new guidelines for labellings products made in Israeli settlements on 11 November that Brussels, Belgium termed as technical. However, Israel thought it was "discriminatory" and intended to ruin its relations with the Palestinians.

Lands that Israel had seized since the 1967 Middle East war, including the West Bank, east Jerusalem and the Golan Heights, are not legally the recognised borders of the country.

The EU's demand is that goods from those particular areas cannot be labelled "Made in Israel" and should be labelled as coming from the settlements,The Guardian reported.

Netanyahu termed the move as "hypocritical and a double standard."

"The European Union should be ashamed of itself," he said during an official visit to Washington earlier this month. "We do not accept the fact that Europe is labelling the side being attacked by terrorist acts."

Israeli President Reuven Rivlin cancelled his visit to the EU headquarters in Brussels scheduled for 2 December, reported.

"It is an indication of origin, not a warning label," EU ambassador to Israel, Lars Faaborg-Andersen told Reuters after the announcement.

Following the declaration, all the 28 members of the bloc will have to follow the same labelling. Britain, Denmark and Belgium label Israeli goods, which are different from those from Israel proper, especially fruit and vegetables that come from the Jordan Valley in the seized West Bank.

The move is expected to affect goods worth nearly $50 million a year, including grapes and dates, honey, olive oil, wine and cosmetics prepared from Dead Sea minerals. This $50 million is only one-fifth of the total $200 million to $300 million worth of goods that are developed in the settlements every year.

Israel and the EU have nearly $30 billion of goods and services traded between them every year.

Israeli farmer and wine growers in the West Bank who have shown concerns after the move have started to move into Russian and Asian markets to avoid the EU rules.

Israel Ministry official said that the country would stop assisting EU-sponsored projects meant for the Palestinians, though no particular instances or bodies were named, The Guardian reported.