Israel's attorney general told the government it could not cut electrical power to the Gaza Strip as part of its sanctions against the Hamas-controlled territory.
Israel began economic sanctions on Sunday in what it said was a response to Palestinian rocket fire on Israeli towns from the Hamas-controlled coastal enclave.
Israel's supreme court told the government to explain its planned actions against Gaza, however, and Attorney General Menachem Mazuz said the plan to reduce power to Gaza needed further scrutiny because of the possible impact on the population.
Israel has begun to reduce fuel supplies, which defence officials said would be cut by up to 14 per cent, depending on the type of fuel.
The European Union warned Israel against imposing "collective punishment" on the 1.5 million Palestinians in the coastal strip by reducing the territory's fuel supplies.
"We understand the distress that is caused in Israel by the continuing rocket attacks from Gaza," Benita Ferrero-Waldner, the EU's commissioner for external relations, said after meeting Israeli Prime Minister Ehud Olmert in Jerusalem.
But she said the new sanctions "will have very grave consequences for the life of the local population" and serve to bolster Hamas and other militant groups. "There should not be collective punishment," she added.