Future agreements between the European Union and the Zionist entity will exclude the settlements in the West Bank and East Jerusalem, according to a new EU directive described by an Israeli official as an "earthquake".

Future agreements between the European Union and the Zionist entity will exclude the settlements in the West Bank and East Jerusalem, according to a new EU directive described by an Israeli official as an "earthquake".

Israeli institutions and bodies situated across the pre-1967 Green Line will be automatically ineligible for the EU grants, funding, prizes or scholarships.

The Zionist entity has to state in any future agreement the exclusion of the settlements in the WB and East Jerusalem.

The directive, part of the 2014-20 financial framework, covers all areas of co-operation between the EU and Israel, including economics, science, culture, sports and academia.

A previous EU decision stated that all its agreements with the Zionist entity must exclude the WB and East Jerusalem settlements because they are considered illegal.

Israeli Prime Minister Benjamin Netanyahu on Tuesday angrily rejected European Union guidelines.

"We shall refuse any external dictates on our borders," his office quoted him as telling an emergency ministerial meeting. "This issue has to be decided only in direct negotiations between the sides."

On the other hand, senior Palestinian official Hanan Ashrawi welcomed the guidelines. "The EU has moved from the level of statements, declarations and denunciations to effective policy decisions and concrete steps which constitute a qualitative shift that will have a positive impact on the chances of peace," she said.