The decision comes two years after +972 and Local Call revealed that the San Francisco-based vacation rentals company included apartments, cottages, and caravans located on West Bank hilltops, while making no mention of the fact that they are in settlements on occupied land.
Airbnb operates in over 190 countries, but their site states that as they are required to comply with worldwide regulations, they do not operate in various countries and jurisdictions. "We know that people will disagree with this decision and appreciate their perspective".
He said Israel would respond by backing lawsuits by settlement listers against Airbnb in USA courts.
Nick Papas, a spokesman for Airbnb, declined to comment on the officials' statements.
Airbnb will remove all listings by Jewish settlers in the West Bank, an Israeli-controlled disputed territory.
All Israeli settlements are considered illegal under worldwide law.
This picture shows a mosque minaret in East Jerusalem (foreground), and the Palestinian city of Jabal al-Baba in the occupied West Bank in the background. Human Rights Watch in particular has campaigned for Airbnb to take this step.
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In contrast, senior Palestinian official Saeb Erekat has welcomed Airbnb's decision as "an initial positive step".
Israel's tourism minister criticised Airbnb's move as "shameful and unfortunate".
Despite the vote, the United States went ahead with the embassy transfer on May 14, triggering demonstrations in the occupied Palestinian territories, Iran, Turkey, Egypt, Jordan, Tunisia, Algeria, Iraq, Morocco and other Muslim countries.
Palestinians claim the territories as parts of a future Palestinian state.
"National conflict [sic] exist throughout the world and Airbnb will need to explain why they chose a racist political stance against some Israeli citizens", Erdan said, as reported by Haaretz.
The U.S. Congress has attempted this year to produce a federal anti-boycott law to protect Israel that would impose penalties on businesses that heeded calls from organizations outside the U.S.to join boycotts.
"By ending its brokering of rentals in illegal settlements on land off-limits to Palestinians, Airbnb has taken a stand against discrimination and land confiscation and theft", Omar Shakir, HRW's director for Israel and the Palestinian territories, told AFP.
Palestinian activists and proponents of the Boycott, Divestment, and Sanctions (BDS) movement have long lobbied Airbnb to end its work in the Jewish-only settlements, which are illegal under global law.