Britain has announced "that there should be no economic involvement in illegal settlements" for the first time.
The UK will also impose fresh sanctions against "networks financing and enabling settler attacks against Palestinians" in coordination with France, Norway, Canada, New Zealand and Australia.
The British government has said it will impose sanctions on six entities and one individual.
An International Court of Justice opinion in 2024 ruled that Israel's occupation of Palestinian territory is illegal. It is against international law for an occupying power to transferring its own civilian population into occupied territory or to forcibly deport or displacing the local population.
Significantly, for the first time the UK will "explicitly advise businesses against economic and financial activity in illegal settlements", according to a government statement.
