In line with the push on a two-state peace deal, 16 EU member states are now pressing on the EU foreign affairs head Federica Mogherini to implement the food-labelling plan that was first suggested in 2012.
"We would welcome you taking the lead in the (European) Commission in order to complete this important work on labelling settlement produce/products...[it] is an important step in the full implementation of EU longstanding policy, in relation to the preservation of the two-state solution," the foreign ministers said in a letter, reported Israeli daily Haaretz.
"[The] continued expansion of Israeli illegal settlements in the Occupied Palestinian Territory, and other territories occupied by Israel since 1967, threatens the prospect of a just and final peace agreement."
The 16 member states include France, Britain, Spain, Italy, Belgium, Sweden, Malta, Austria, Ireland, Portugal, Slovenia, Hungary, Finland, Denmark, The Netherlands and Luxembourg.
Germany is one of the only big European countries to opt out of being a signatory.
Labelling settlement products will allow consumers to know exactly where the products they are purchasing originate from and prevent them from being "misled by false information."
"European consumers must indeed have confidence in knowing the origin of goods they are purchasing. Green Line Israel and Palestinian producers will benefit from this," said the ministers.
An EU diplomatic source that chose to remain unidentified said: "We cannot accept that produce from the settlements in occupied territory be freely traded. The letter shows Europe's determination to put into effect what was agreed in 2012."
Meanwhile, Israel has reportedly condemned the move as a means to isolate the nation.
Opposition centrist Yesh Atid party leader Yair Lapid said: "This is a de-facto call to boycott Israel. There is no difference between products which are produced over the Green Line and those that are produced within the Green Line.
"This is an irresponsible call that could create wreak havoc on the Israeli economy. This kind of call is a stain on the EU, and the state of Israel has to fight to prevent this kind of initiative."