The UK is preparing to confer diplomatic status on the Palestinian delegation in London for the first time, renewing fears in Israel that Europe is moving closer to recognising an independent Palestinian state.

The British Foreign Office confirmed it was studying a plan to see Palestinian "general delegations" upgraded to "diplomatic missions" in a number of European capitals.

Coming just weeks after the collapse of direct peace negotiations, following Israel's refusal to halt settlement construction in the West Bank, the move was denounced by the Israeli government. Yigal Palmor, a spokesman for the Israeli foreign ministry, said: "This will certainly not encourage the Palestinians to return to direct talks."

Although the change of status is largely symbolic, Israel has started a major lobbying campaign to stop the move.

Meanwhile, the Palestinian leadership has stepped up its efforts to win European recognition for a state on land occupied by Israel in 1967.

France, Spain and Portugal were the first countries to have upgraded the standing of Palestinian representation.

This month, several South American countries, including Brazil, Argentina, Uruguay and Bolivia declared their recognition of a Palestinian state based on the 1967 borders.