Norway has blocked its $820 billion pension fund from investing in two Israeli companies because of their construction activities in East Jerusalem.
The Foreign Ministry this week blacklisted Africa Israel Investments and its subsidiary, Danya Cebus, on a recommendation from the fund's ethics council.
The companies were excluded from the fund – one of the world's biggest institutional investors – once before, in 2010. That time it was for construction in the West Bank.
The fund's ethics council says the settlements represent "serious violations of the rights of individuals in situations of war or conflict."
As well, the EU recently said that it would not tolerate a continuation of the Israeli-Palestinian conflict.
For long seen as a "payer not a player" in the region, the European Union has started clarifying that its role as Israel's biggest trade partner and the Palestinians' largest donor should not be taken for granted.
"We have made it clear to the parties that there will be a price to pay if these negotiations falter," EU Ambassador to Israel Lars Faaborg-Andersen said.
The EU has grown especially frustrated by Israel's repeated announcement since the talks started of new Jewish settlement building on land the Palestinians want for their future state.
"If Israel were to go down the road of continued settlement expansion and were there not to be any result in the current talks, I am afraid that what will transpire is a situation where Israel finds itself increasingly isolated," he said.
A major private Dutch pension fund announced earlier this month that it was divesting from five large Israeli banks because of their operations in the settlements, and other Norwegian and Swedish funds are considering similar moves.