Israel has warned that it will retaliate against the United Kingdom if London imposes sanctions over Israel’s plans to expand settlements in the occupied West Bank.

Israeli Foreign Minister Gideon Saar issued the warning after UK Foreign Secretary Ed Miliband said the government would announce a “comprehensive reset” of its policy towards Israel in the coming weeks.

“If Britain acts against Israel, Israel will act against Britain,” Saar told the Hebrew-language news website Ynet, according to the BBC and The Independent.

Miliband told Parliament that the UK was examining measures to prevent British companies from “financing, constructing or advertising new settlements” in the West Bank.

He described Israel’s plans for the E1 settlement area as “the crossing of a red line”, warning that they could make the establishment of a viable Palestinian state impossible.

Last month, Israel opened tenders for around 1,200 settlement homes in the strategically important E1 area, east of Jerusalem. The plans have drawn widespread international condemnation.

The UK government has described the settlements as illegal under international law, while officials have warned that development in E1 could effectively divide the West Bank and isolate East Jerusalem.

UK Prime Minister Andy Burnham also warned that advancing the E1 plans could “imperil or end” the prospect of a two-state solution.

Miliband said the government would consider a broader range of measures beyond trade, including its response to international legal findings on the Israeli occupation and settlements.

The proposed two-state solution envisages an independent Palestinian state in the West Bank and Gaza, with East Jerusalem as its capital, existing alongside Israel. Israel rejects the proposal.