The EU has urged Israel to undo a move by a far-right minister that threatens to paralyse Palestinian financial institutions, AFP reports.

Finance minister Bezalel Smotrich announced Tuesday that Israel had cancelled a waiver allowing its banks to work with Palestinian ones.

“The European Union is deeply concerned by the instruction by Israel’s finance minister Smotrich to cancel the waiver on cooperation with Palestinian banks, which could cut them off from the Israeli financial system, devastate an already crippled Palestinian economy, and may lead to the collapse of the Palestinian Authority,” EU spokesman Anouar El Anouni said.

“The EU calls on Israel to revert this decision immediately and to refrain from any action that could lead to the collapse of the Palestinian authority.”

The Palestinian financial and banking system is dependent on the regular renewal of the Israeli waiver. It protects Israeli banks from potential legal action relating to transactions with their Palestinian counterparts, for instance in relation to financing terror.