Israel and Jewish groups have protested after South Africa's cabinet approved regulations to label goods made in Israeli settlements as being from the Occupied Palestinian Territories.
Israel's foreign ministry said the requirement was "totally unacceptable" and "blatant discrimination".
But South African said the move conformed with its standing policy.
Pro-Palestinian groups have called for a boycott and sanctions campaign against Israeli goods and companies.
South African government spokesman Jimmy Manyi told reporters: "This is in line with South Africa's stance that recognises the 1948 borders delineated by the United Nations and does not recognise occupied territories beyond these borders as being part of the state of Israel."
But in a statement, Israeli Foreign Ministry spokesman Yigal Palmor said: "What is totally unacceptable is the use of tools which, by essence, discriminate and single out, fostering a general boycott.
"Such exclusion and discrimination bring to mind ideas of racist nature which the government of South Africa, more than any other, should have wholly rejected."
The South African Jewish Board of Deputies also criticised the new measures, calling them "discriminatory" and "divisive".
"They are believed to be motivated not by technical trade concerns but by political bias against the state of Israel," the group said in a statement.
An international boycott of South Africa helped to bring down the apartheid regime in the 1980s, with Israel being one of the last countries to sign up to the campaign.
In 2009, the European Union ruled that goods made in Israeli settlements in the West Bank would no longer be eligible for the preferential trade terms enjoyed by other Israeli producers.
About 500,000 Jews live in more than 100 settlements built since Israel's 1967 occupation of the West Bank and East Jerusalem. The settlements are considered illegal under international law, though Israel disputes this.