European governments, including Britain's, have received legal opinion from a leading international counsel who argues they would be fully within their rights to ban trade with Israeli settlements in the occupied West Bank.

The formal opinion from James Crawford, professor of international law at Cambridge University, is likely to inject fresh momentum into campaigns in the United Kingdom and elsewhere for a ban, at a time when some EU member states are examining ways of hardening their position on the imports of settlement produce.

Israeli settlements in the West Bank are considered illegal under international law, a position upheld by all EU member states.

In particular the opinion will be seen as challenging received wisdom in official circles that for a state such as Britain to ban imports of settlement produce, or prohibit banks from financing settlement activity, would contravene European or global trade law. Professor Crawford says in his 60-page opinion, shown to senior officials of EU member states in the past few months and seen by The Independent, that "there do not appear to be any EC laws which could be breached by a member state taking the decision to ban the import of settlement produce on public policy grounds."

He argues that member states wishing to block the import of produce from settlements could "have recourse" to the EU's Association Agreement with Israel, which stipulates that the agreement "shall be based on respect for human rights and democratic principles." He argues that, by executing such a ban on trade with settlements, the EU would not be in breach of its World Trade Organisation obligations since, "as a matter of international law, the West Bank and Gaza cannot be considered to be Israel's territory".

The opinion will be published this week by the Trades Union Congress, which has mounted a sustained campaign for a ban on settlement trade – as distinct from a boycott of Israel itself, which the TUC does not support.

Brendan Barber, TUC general secretary, said that the UK had made a "real difference" by ensuring supermarket goods from settlements were properly labelled.

But, adding that a ban was needed, he said that every settlement weakened the hope of a Palestinian state living peacefully alongside Israel. "Governments across Europe agree with this, but they need to move beyond words to practical action."

Denmark and Sweden, as well as South Africa, are considering following the UK lead on labelling, while the Irish government has suggested the EU should consider an all-out ban on settlement goods.

Professor Crawford's opinion rejects arguments that EU member states are obliged – rather than merely able – to enforce a ban.

But it suggests that states – as distinct from private sector corporations – which directly buy produce from settlements or provide financial or other assistance, for example, could be liable to penalties under international law.

It could also indirectly renew focus on the £1m paid by the European Commission through a scientific co-operation fund to Ahava, the prominent Israeli Dead Sea cosmetics company, which has a mineral extraction facility in the occupied West Bank.