The British Government's plan to rent new premises in a Tel Aviv skyscraper hasrun into trouble after a wave of protests that their prospective landlord is a major participant in Jewish settlement-building in the occupied West Bank.

The British embassy has been in negotiations to lease three floors in Kirya Tower from Africa Israel Investments, a company controlled by Lev Leviev, a London-based property and diamonds billionaire with substantial business interests in Israel.

Pro-Palestinian organisations are urging the Foreign Office to cancel the plans, arguing that one of the company's subsidiaries is prominent in settlement building and that Mr Leviev is a big contributor to the Land Redemption fund, which acquires Palestinian land for Jewish settlements.

Daniel Machover, of the UK-based Lawyers for Palestinian Human Rights, says in a letter to The Independent that renting space from Mr Leviev is "tantamount to HM Government condoning Israel's settlement building, supporting clear violations of international law, which in some cases [amounts] to grave breaches of the Fourth Geneva Convention, and hindering the possibility of peace in the Middle East". Most Western governments ? including Britain's ? regard settlements as illegal under international law.

Mr Machover points out that Gordon Brown strongly criticised continued settlement expansion on his visit to the Middle East this year. And he says that the advisory opinion issued by the International Court of Justice in 2004 reminded third party states that they "are also under an obligation not to render aid or assistance in maintaining the situation created by such construction".

Danya Cebus, a construction subsidiary of Africa Israel, has been accused by human rights activists of building homes in a number of West Bank settlements including the ultra- Orthodox settlement Modiin Illit, close to the Palestinian village of Bil'in.

In June, the United Nations Children's Fund, Unicef, announced, in response to lobbying by the United States-based Arab rights group Adalah NY, that it would no longer enter into partnerships or accept contributions from Mr Leviev because of his suspected involvement in settlement building. Mr Leviev had been a contributor to Unicef as well as a sponsor for at least one fund-raising event.

The embassy is understood to be looking into the allegations that Mr Leviev is also a contributor to the National Redemption Fund, which has been criticised for the some of the methods it uses to purchase land in the West Bank.

The embassy's plans came to light when the Israeli business newspaper Globes reported that the British embassy was intending to move from its valuable decades-old premises in the city's coastal Hayarkon Street to rent space in the 42-storey tower, more than half of which is occupied by Israeli government offices.

Globes says the annual cost of renting the 6,000 square metres of office space in the building, which has a helipad on the roof, would be $162,000 a year, or ?88,698 at yesterday's exchange rate.

Earlier this year the Tory MP Crispin Blunt protested after it emerged that as a result of an internal mix-up three members of the Yesha Council, the umbrella organisation representing West Bank settlers, had been invited to the annual Queen's Birthday Party given by the embassy.

The Foreign Office minister Kim Howells subsequently said the settlers' presence was "not helpful" and pledged that no further such invitations would be issued.

The British embassy said yesterday that an "internal process" was looking at a "number of options" for relocating, but that no decisions had been taken. It added: "The Government has made its position on settlements very clear; we believe that settlements contravene international law and are a significant impediment to progress on the peace process. Should we decide to relocate the embassy, we will make clear the intended location once a decision has been reached."

Africa Israel was not available for comment yesterday because of the weekly Sabbath holiday.