Israel's ultra-nationalist Foreign Minister, Avigdor Lieberman, condemned the move in strong terms saying it as "a miserable decision that strengthens the extremist elements and Palestinian rejectionism".
"It's a shame that the government of Sweden chose to take a declarative step that only causes harm and offers no advantage," Lieberman asserted.
Urging the Swedish government to act with "responsibility and sensitivity", the Israeli foreign minister likened the European country's decision to its well known brand IKEA.
Political sources in Israel have expressed concerns over growing sympathy for the Palestinians in the aftermath of the 50 day Gaza war recently in which more than 2,100 Palestinians, many of them women and children, were killed.
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Israelis have countered worldwide condemnation justifying the military action in self defence to protect innocemt civilians from indiscriminate rocket and mortar fire.
Israel also accused Palestinian militants of using women and children as "human shield" during the war.
Political sources here stressed that a solution to the vexed issue is possible only through negotiations with Israel and such recognitions will further complicate the formation of a Palestinian state.
The 28-nation European Union has said that it would recognise a Palestinian state "when appropriate," and has urged that negotiations to achieve a two-state solution be resumed as soon as possible.
In an earlier setback to Israel, British lawmakers in a symbolic move this month voted in favour of recognising Palestine as a state.