Israel's deputy Foreign Minister, Zeev Elkin, has said that his country and the EU would continue to drift apart if they don't find a compromise solution on the new EU criteria relating to Israeli settlements in the occupied Palestinian territories.
Elkin added that differences over the settlements could affect commercial relations and research cooperation between the two.
Speaking to Reuters on Friday, Elkin said, "If we fail to resolve this problem, the future direction will be a kind of separation between Israel and the European Union."
"We are an emerging nation and it would be a big mistake for Europe to lose its relations with Israel," he added.
Despite its strong diplomatic and military ties with the US, Israel depends heavily on its commercial ties with Europe, which is its largest trading partner. Trade with Europe now account for one-third of Israeli exports and imports.
Strains in the relations between Israel and the EU came to the fore last July when the latter announced that as from 2014 it would end financial assistance to Israeli NGO's working in the settlements in the occupied territories.