Greek Orthodox priest Isidoros Fakitsas said that the move has impaired the Church of the Holy Sepulchre to pay bills and salaries.
As a result, the church is considering closing for a day in protest, shutting the doors to one of Christianity's most popular pilgrimage sites.
The account was blocked two weeks ago and lawyers were hired to address the matter in court, Fakitsas said. He insisted the church will be able to function despite the blocked bank account and that if matters become too difficult, it will try and find an alternative, such as opening a new bank account.
The church for decades was exempt by the different leaderships which ruled over Jerusalem's Old City from paying water bills until the Israeli water company began pressing it to pay up a few years ago.
Fakitsas, the superior of the Greek Orthodox Church, said an agreement was reached after months of negotiations. Under the deal, various denominations in the church would pay their monthly bill. A debt of some NIS 9 million ($2.32 million) was to be forgotten, he said.
But to the surprise of the church elders, its account was blocked two weeks ago, making it impossible to pay stipends of some 500 priests and monks, 2,000 teachers and the running costs of over 30 Christian schools that the church runs in the Palestinian territories and Jordan, church spokesman Issa Musleh said.
The water company, which could not immediately be reached for comment, demands the church pay for its water – charges from which it has been exempt for decades.
The Israeli Tourism Ministry said the issue is between the Church and the Jerusalem municipality. But because of the great importance of the site, the ministry is now trying to mediate between the two sides and hopes the issue will be resolved quickly.