Israel has declared that it will not pay a $1.1bn (£650m) debt to Iran over the sale and shipment of the Islamic Republic's oil despite being ordered to do so by a Swiss court.

The Swiss court found that Israel had not compensated the Islamic Republic for a pre-1979 Islamic revolution deal that involved the sale and shipping of Iranian oil through an Israeli port.

At the time, Israel and Iran were allies against their Arab neighbours. However, after the rise of the Ayatollahs, Iran adopted a hard line against the Jewish state, saying it should be wiped off the face of the Earth.

Tehran has also provided Hamas, in the Gaza Strip, and Hezbollah, in Lebanon, with billions of dollars worth of financial and military aid.

Israel said on 20 May that it will not pay the debt to the Iranians. "Without referring to the matter at hand, we'll note that according to the Trading with the Enemy Act it is forbidden to transfer money to the enemy, including the Iranian national oil company," the Finance Ministry statement said.

The argument stems back to a 1968 agreement between Israel and the Shah's government, under which the Iranian Oil Company delivered 14.75m cubic metres of crude oil through the Eilat-Ashkelon Pipeline Co at a value $450m to Israel's Trans-Asiatic Oil Ltd.

For its part, Israel argued that it was Iran that broke the agreement. Iran also alleged that it had not received payment for the crude oil supplied to Israel before the revolution.