The guidelines will go into effect in the beginning of next year.
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The EU's foreign policy chief Catherine Ashton also issued a statement in which it was stated that, “Today the EU published a document that reiterates the long-held position that bilateral agreements with Israel do not cover the territory that came under Israel's administration in June 1967.
"This is meant to clarify the EU's position in advance of negotiations of agreements with Israel during the forthcoming financial perspective commencing in 2014.
Quarry in Mount Avital, Golan Heights. To lose funding (Photo: Ziv Reinstein)
"In no way will this prejudge the outcome of peace negotiations between Israelis and Palestinians. It has been the EU's long held position that it will recognise changes made to the borders once agreed by both parties.
"The EU is deeply committed to Israeli-Palestinian negotiations and fully supports Secretary Kerry's intense efforts to restart negotiations at a particularly delicate stage. In this way, the EU hopes to further contribute to an atmosphere conducive to a meaningful and sustainable negotiation leading to a peace agreement between the parties."
Elon Moreh. Beyond Green Line (Photo: lowshot.com)
Ashton further added that the EU looks forward to working and consulting with Israel on a broad range of bilateral issues, and has invited Israel to hold discussions on the territorial scope of agreements with the EU that are currently under preparation."
Netanyahu anyahu called a meeting with Justice Minister Tzipi Livni and Economy Minister Naftali Bennett stressing that "We will not follow any demands regarding our borders. These issues will be resolved only through direct negotiations."
The European decision followed months of discussions at the various EU bodies. Europe warned Israel many times of possible sanctions against settlements but Jerusalem tended to disregard such threats.
The guidelines will have a dramatic effect on various projects but will not affect funding of institutions that employ settlers. Entities that are based inside Israel will continue to enjoy EU cooperation as will government agencies and ministries some of which are physically located beyond the Green Line.
Elior Levy contributed to this report
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