Egyptian officials say they have scrapped an agreement to supply Israel with natural gas. Israel received around 40% of its gas supplies from Egypt and uses it to generate electricity.
The announcement comes after the cross-border pipeline suffered numerous sabotage attacks which cut supplies.
The Israeli Finance Minister, Yuval Steinitz, said the move was of "great concern", and overshadowed peace agreements between the countries.
Egypt was the first Middle East country to sign a peace accord with Israel, in 1979, and the deal to supply energy has been a key part of agreements between the two states. Heavily criticised
A statement from the Egyptian Natural Gas Holding Company said it was ending supplies because the terms of its contract had been breached.
Ampal, the Israeli company which buys the gas, said in a statement that it considers the attempt to terminate the contract "unlawful and in bad faith", and demanded its withdrawal.
The company has tried to get compensation after supplies were interrupted following frequent sabotage attacks on the gas pipeline.
There have been 14 attacks since last year's uprising which unseated the Egyptian President, Hosni Mubarak.
The deal to send gas to Israel has been heavily criticised inside Egypt.
At the same time unrest in northern Egypt has increased, partly due to tensions with heavily-armed Bedouin tribes who live there.
