Spain's Housing Ministry says it has disqualified a group of Israeli academics from a solar power design competition because their university is in the West Bank.
The move is the latest in a series of low-level European sanctions against Israel over its West Bank settlements.
A ministry official says Spain has acted in line with EU policy of opposing the settlements.
The ministry has disqualified a team from Ariel University Center of Samaria from the Solar Decathlon. Samaria and Judea are the two Biblical names for the land now known as the West Bank.
The contest is sponsored by the US Energy Department, but Spain is hosting it in 2010 and 2012.
The Spanish official spoke on condition of anonymity, in line with ministry rules.
Following the decision, the National Union of Israeli Students sent a protest letter to the Spanish student union and to the European student union.
The Israeli students wrote, "It's unfortunate that irrelevant, faulty political motives have led to the decision to remove the application. We condemn the blatant harm caused to academic freedom and ask you to help us act against this troublesome phenomenon."
Yaheli Moran Zelikovich contributed to this report