UK food labels are set to distinguish between goods from the Palestinians in occupied territories and produce from Israeli settlements.
The Food packaging guidelines advise a change from labels usually naming only Israel or West Bank as the source.
The government said it was opposed to a boycott of Israeli goods, but that the settlements posed an obstacle to peace.
The Palestinian general delegation to the UK welcomed the move, but Israel said it was "extremely disappointed".
All Jewish settlements in the West Bank are illegal under international law, though Israel disputes this.
