Retailers must mark food made in Israeli settlements with special labels, the European Union’s highest court has ruled, in a decision that could affect products found on British shelves.

The European Court of Justice said on Tuesday that items must be clearly labelled if they originate from an Israeli settlement.

The ruling concludes a long-running case brought by Psagot, a winemaker based in a West Bank settlement north of Jerusalem, which was challenging labelling requirements in France.

“Foodstuffs originating in the territories occupied by the State of Israel must bear the indication of their territory of origin,” the Luxembourg-based court said in a statement, adding that if it they came from a settlement, they must carry an “indication of that provenance”.

The West Bank and East Jerusalem were captured by Israel during the Six Day War in 1967, and the first settlements were established shortly afterwards.

Today nearly 700,000 Israelis live in both areas, amounting to nearly a tenth of Israel’s entire Jewish population.

The international community, including Britain, considers the territory to be occupied by Israel and opposes settlement construction.

It was not immediately clear how Tuesday’s court announcement will affect food labelling in the UK. The country is not due to leave the European Union until January 31 next year and remains bound by its rules.

Rabbi Menachem Margolin from the European Jewish Association said the policy was “purely discriminatory against the world’s only Jewish state” while the Lawfare Project, a pro-Israel legal think-tank, said it was an “embarrassing” ruling that codified religious discrimination.

“There is no reason for products produced by Muslims and Jews in the same geographic place to be labelled differently,” said Brooke Goldstein, the organisation’s director.

“In fact, treating people differently because of their religion is the definition of bigotry and we know what happens when Europe goes down that track.”

But Lotte Leicht, EU director of Human Rights Watch, said it was “an important step toward EU member states upholding their duty not to participate in the fiction that illegal settlements are part of Israel.”

She added: “European consumers are entitled to be confident that the products they purchase are not linked to serious violations of international humanitarian law.”