Labour MPs have been accused of launching a “thinly disguised attack” against Israel during a debate on ethical procurement rules for councils.

Town Halls were told in February that they face “severe penalties” if they try and boycott trade and investment with Israel.

Toey, Matthew Offord MP

Tory, Matthew Offord MP

New guidance states that locally imposed boycotts of a country are inappropriate unless formal legal sanctions or trade embargoes have been imposed by the Government.

However, the guidance has prompted outcry in some quarters with critics labelling the move as an attack on local democracy.

Dr Matthew Offord, the Tory MP for Hendon, said it was a “great pity” that the debate on the issue in Westminster Hall had been promoted as about local government.

“In reality it is just a thinly disguised attack against the legitimate and democratic state ofIsrael,” he said.

The debate came as a Labour activist at the centre of an anti-Semitism row was suspended from the party while allegations are investigated.

Mr Offord said the premise of the debate “has more to do with cheap political point scoring than with the lives of individuals”.

He said: “It is welcomed by myself and my constituents that the Government has announced new rules to curtail silly left-wing town halls and all publicly-funded bodies who adopt politically motivated anti-Israel boycott and disinvestment campaigns.”

But Richard Burgon, Labour’s shadow treasury minister, described Mr Offord’s comments as an “absolute disgrace” as he attacked the rules.

“This is a step too far,” he said.

“This is about democracy. This is an affront to democracy.”

Chloe Smith, the Tory MP for Norwich North, defended the guidance.

She said that foreign policy should be set by the national government in Westminster.

She said: “Having policy made in town halls can damage foreign relations to the detriment of Britain’s national and international security.”

Meanwhile, she said that setting foreign policy locally could damage local community cohesion, could be unlawful and could put taxpayers’ money “at risk” because of potential legal challenges and subsequent fines.

Naseem Shah, Labour MP for Bradford West, said that “watering down” the ability of local authorities to make decisions for themselves simply because what they want to do is not in line with Government policy is “absolutely wrong”.

She said: “This is about upholding international law. Nobody in this chamber, in this House, is saying we should be boycotting Israel.

“What we are saying is councils and people should have the right, the legitimate right, to make decisions on procurement.”

Tommy Sheppard, the SNP’s Cabinet Office spokesman, said: “I think we should be absolutely clear that what is at discussion here is not the state of Israel but the activities in the illegal settlements in the occupied Palestinian territories.”

But Cabinet Office Minister John Penrose said that while the “settlements themselves are absolutely illegal” that does not necessarily mean that firms operating there are doing anything illegal.

“Therefore there is a separate case by case decision that has to be made on the basis of each potential supplying company as to whether or not they do or do not satisfy the rules,” he said.

Mr Penrose said that local authorities do have flexibility in terms of procurement.

However: “The rules themselves are clearly necessary to protect them by ensuring they do not take actions that could land them and us in court.

“Nobody wants to waste public money on costly court cases.”

The new guidance was announced by Cabinet Office Minister Matthew Hancock on a visit to Israel.