Israeli officials have watched with dismay how the BDS movement (or "boycott divestment sanctions") has gained a foothold in parts of Europe. Last November, the European Union ruled that products made in Jewish settlements in the West Bank -- deemed technically illegal by the international community -- would be specifically labeled as coming from occupied territories.
The new British rules will be announced by Matt Hancock, Britain's cabinet office minister, on a visit to Israel this week.
"Locally imposed boycotts can roll back integration as well as hinder Britain's export trade and harm international relationship," read a statement released from the British Cabinet Office on Monday.
"Town hall boycotts undermine good community relations, poisoning and polarising debate, weakening integration and fuelling anti-Semitism," it argued, warning that institutions that persisted with these boycotts would face "severe penalties."
The move has evidently pleased the Israeli government. Hancock had met with Israel's social opportunity minister, Gila Gamliel, last week in London.
"We welcome the decision taken by the British authorities not to allow anti-Israeli initiatives at local level," an Israeli foreign ministry spokesman told AFP.
BDS activists have made significant strides in recent years as prospects for a two-state solution for Israelis and Palestinians dimmed. Some prominent figures in the right-wing government of Israeli Prime Minister Benjamin Netanyahu explicitly oppose the political process long espoused by successive administrations in Washington and much of the international community.
The continued expansion of Israeli settlements in the West Bank led to numerous governments in Europe formally recognizing the state of Palestine, a symbolic yet highly charged act.
In 2014, the Leicester city council ruled to boycott goods made in Israeli settlements, while the government in Scotland circulated an advisory saying it "strongly discourages trade and investment from illegal settlements."
The BDS movement channels the historic legacy of the global anti-apartheid campaign in the 1980s, which saw boycotts and protests heap pressure on Western policymakers. Israeli officials and their allies balk at the comparison to South Africa's racist regime.
A spokesman for opposition Labor leader Jeremy Corbyn condemned the new rules: "The Government’s decision to ban councils and other public bodies from divesting from trade or investments they regard as unethical is an attack on local democracy," he told the Independent.
"This Government’s ban would have outlawed council action against apartheid South Africa," the spokesman added. "Ministers talk about devolution, but in practice they’re imposing Conservative Party policies on elected local councils across the board."
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