The UK government has issued an explicit warning to British businesses over the risks of involvement in Israeli settlements in the West Bank, including potential damage to a company's reputation.

New guidance published by UK Trade & Investment, a government body that works with British businesses in international markets, says there are "clear risks related to economic and financial activities in the settlements, and we do not encourage or offer support to such activity".

It goes on: "Financial transactions, investments, purchases, procurements as well as other economic activities (including in services like tourism) in Israeli settlements or benefiting Israeli settlements, entail legal and economic risks stemming from the fact that the Israeli settlements, according to international law, are built on occupied land and are not recognised as a legitimate part of Israel's territory."

It advises citizens and businesses to be aware of the "potential reputational implications" of involvement in Israeli settlements, urging those "contemplating any economic or financial involvement in settlements [to] seek appropriate legal advice".

It is the first time the UK government has explicitly stated its position on settlements, which are illegal under international law, in advice specifically directed at businesses. It is part of a steadily stiffening position by the UK on settlements and their produce, an indication of frustration and anger at Israeli intransigence on its activities in the occupied Palestinian territories.

The guidance was seized on by the boycott, divestment and sanctions (BDS) movement. "The UK government has realised that its condemnations of illegal settlements are falling on deaf ears, and has started to address the huge amount of economic support that the illegal settlements receive from UK businesses," said Rafeef Ziadah, of the Palestinian BDS national committee.UY

But, she added, the guidance needed to go further. "It isn't enough to simply warn businesses about the economic and legal risks of doing business with settlements. The UK government and all EU member states have a duty to take a proactive approach to preventing businesses from contributing to Israeli violations of international law and Palestinian human rights."

Pro-Palestinian campaigners pointed to firms such as G4S and Veolia, which have encountered public criticism because of their involvement in business activities across the pre-1967 Green Line.

Earlier this year, the EU said it would no longer give funds or grants to bodies, including research and academic institutions, with links in Israeli settlements in the West Bank, including East Jerusalem. The British government has introduced voluntary guidelines for supermarkets and other retailers on the labelling of settlement produce to allow consumers to make an informed choice about purchases, and has pressed the EU to adopt a similar policy.

The Israeli embassy in London said it was troubled by the assertion in the UKTI guidance that economic activity in Israeli settlements entailed special legal or economic risks, and was concerned that the warning of "potential reputational implications" in relation to Israel did not apply to any other country or regime. However, it welcomed the confirmation in the guidance that the British government was strongly opposed to boycotts.

A spokesman for the British embassy in Tel Aviv stressed that the guidance was voluntary and decisions were the responsibility of individual businesspeople or companies. "We are deeply committed to promoting the UK's trade and business ties with Israel," he added.