A hotel in Eilat which has long been a favourite with British tourists and celebrities is under threat of closure.

The British-owned Princess Hotel could shut down in October. Marlon Tesler, the son of philanthropist Alexander Tesler, who built the hotel in 1992, said "over-bureaucracy" was at the heart of the problem.

The Princess is currently managed by Isrotel, which specialises in running hotels. But Israel's monopolies commission has ruled that the Princess cannot renew its contract with Isrotel because the company manages the bulk of hotels in the resort.

As an alternative, Mr Tesler has attempted to arrange a management contract with Tamares, an investment group owned by London-based billionaire Poju Zabludowicz.

But, according to Mr Tesler, the Israeli bank which provided a loan to the hotel worth £25 million will accept only Isrotel as managers.

"We are stuck in a catch-22 situation," said Mr Tesler. "The monopolies commission has decided to rule against our Isrotel contract and the bank has said that if we don't have a contract with Isrotel, they want their money back. It's over-bureaucracy."

Since it opened 13 years ago the hotel has attracted celebrities such as Hollywood actor Robert De Niro and opera singer Andrea Bocelli, as well as politicians including Tony Blair, Benjamin Netanyahu and Shimon Peres.

It has also drawn crowds of holidaymakers from the UK Jewish community. "The 'who's who' of north-London Jews stayed here," said Mr Tesler.

He described the current situation as "sad. The most stupid thing about it is that the Princess is in good shape - it's profitable."

The Knesset's economics committee is due to discuss the hotel's predicament next week.