Products from Israeli settlements in the occupied Palestinian territories must be clearly labelled as such when on sale in EU countries, the bloc’s highest court has ruled.

On Tuesday morning the European Court of Justice (ECJ) said that “foodstuffs originating in the territories occupied by the State of Israel must bear the indication of their territory of origin”.

Israeli producers had argued that labelling wares as being from “Israel” should be sufficient, and that any other distinction would encourage a boycott of their goods and, therefore, the country.

Campaigners supporting the ruling said that the approach normalised Israel’s occupation of the territories and put a two-state solution in jeopardy.

The EU has consistently spoken out against settlement expansion by Israel and says that these communities undermine efforts to create a Palestinian state, by depriving Palestinians of land on which one could be based. It also regularly notes that Israel’s settlements in the West Bank are illegal under international law.

In a ruling on Tuesday, the ECJ concluded that the products could not be labelled “Israel” as “the state of Israel is present in the territories concerned as an occupying power and not as a sovereign entity”.

It added that this information “could influence consumers’ purchasing decisions”, some of whom choose not to buy products because of “ethical considerations and considerations relating to the observance of international law”.

The court said that products should not only note that they originate from the occupied territories, but that it should also be stated whether they derive from an Israeli settlement.

“The settlements established in some of the territories occupied by the State of Israel are characterised by the fact that they give concrete expression to a policy of population transfer conducted by that State outside its territory, in violation of the rules of general international humanitarian law,” the ECJ said in a statement.

“Consumers have no way of knowing, in the absence of any information capable of enlightening them in that respect, that a foodstuff comes from a locality – or a set of localities – constituting a settlement established in one of those territories in breach of the rules of international humanitarian law.

“The Court noted that, under Regulation No 1169/2011,8 the provision of information to consumers must enable them to make informed choices, with regard not only to health, economic, environmental and social considerations, but also to ethical considerations and considerations relating to the observance of international law.”

The case was brought to the European courts by Psagot, a controversial Israeli settler winery which, The Independent revealed, is owned and bankrolled by American Duty Free tycoons the Falic Family.

In an interview with The Independent, Psagot’s Israeli director Yaakov Berg said the EU rules are discriminatory against his products and politicised.

He claimed it as part of the pro-Palestinian boycott movement of Israel known as “boycott, diversity and sanctions” (BDS), which is effectively criminalised in Israel.

The provision of information to consumers must enable them to make informed choices, with regard not only to health, economic, environmental and social considerations, but also to ethical considerations and considerations relating to the observance of international law European Court of Justice

This is despite the fact that neither the EU nor the United Nations recognise Israeli settlements within the West Bank as being part of Israel.

There was no immediate comment from Psagot after the ruling. However pro-settlement Israeli group NGO Monitor has supported the case, and said the labelling was a “gateway drug towards BDS and other forms of demonisation” of Israel.

Israeli rights’ workers, meanwhile, welcomed the move.

Dror Etkes, who has spent two decades monitoring the settlement enterprise – and heads up watchdog Kerem Navo – said “Israel invested and lives in its own reality. The EU reminded us that there is a parallel reality which the rest of the world lives in.”

Tuesday’s ruling may have practical, actual impact on labels on settlement goods. The regulation is only advisory and cannot be easily enforced.

In fact, a report released on Tuesday – by the Brussels-based European Middle East Project – stated that only 10 per cent of settlement wines currently on sale in the EU are correctly labelled.

This is despite the fact labelling rules were introduced four years ago.

The UK was said to also be among the EU States where the stocking of West Bank wines is particularly concentrated and poorly labelled.

The report concluded that there was an immediate need for a more proactive enforcement of the rules.

Questions of consumer boycotts against Israeli goods and suppliers are a live issue in UK politics.

In 2016, the Conservative government banned local authorities and public sector organisations from boycotting Israeli suppliers, stating that the policy is “inappropriate”.

In 2014, Leicester city council voted to boycott produce from Israeli settlements. Earlier this year, Germany’s parliament voted to condemn BDS sanctions against Israeli as an antisemitic movement, citing “growing unease” in the country’s Jewish community.