South Africa is planning to require "Made in the Occupied Palestinian Territories" labels on products from Jewish settlements in place of "Made in Israel" labels, the trade ministry said on Saturday.
The move prompted a furious response from Israel's foreign ministry which described it as "racist".
"For now, there is no decision but people should know that South Africa recognises Israel inside the 1948 UN borders," Macdonald Netshitenzhe, the trade ministry's director for trade policies and legislations, told AFP.
"Now coming to the issue of Palestine and Israel, a product from Israel has to be manufactured or produced within the borders of 1948," he said.
Any territories taken over by Israel in the wake of the war which accompanied its independence in 1948 -- such as the West Bank and Gaza Strip, which were occupied in 1967 -- would not be included in that definition.
"Therefore, for the goods or vegetables which are grown in the area where Israel invaded other Arab countries, South Africa says, you better say these products are grown in Palestine or Occupied Palestinian Territories," Netshitenzhe added.
Trade and Industry Minister Rob Davies said on Wednesday the move was aimed at helping "South Africans who do not support Israel, but who in fact do support the Palestinians, to identify those products."
"This doesn't, however, mean any kind of boycott of Israeli products," he said, in remarks quoted by South African news agency SAPA.
Israel's foreign ministry reacted angrily to the news, with spokesman Yigal Palmor telling AFP that South Africa's ambassador to Israel would be summoned for an explanation in the coming days.
"This is not a political objection to settlements, rather the act of singling out a state by a special marking system based on national-political criteria. Therefore, it is by essence a racist move," Palmor said.
"It is shocking to think that South Africa, of all countries, would display such callousness, and is blindly marching down the slippery slope of racism."