Spanish Prime Minister Pedro Sanchez, one of the most outspoken critics of Israel's military operations in Gaza, halted weapons transactions with Israel after the outbreak of the war following Hamas's attack on Israel on October 7, 2023.
The interior ministry sought to terminate the 6.8-million-euro ($7.8 million) contract with Israeli firm IMI Systems, which was to supply bullets to the Spanish Civil Guard police force.
But on Wednesday the ministry said it had abandoned its attempt to cancel the deal after state legal services advised against it "due to the advanced stage of the processing of the contract" and because it would have had to pay without receiving the bullets.
The far-left Sumar party, the junior partner in Sanchez's ruling coalition, reacted angrily, calling the reversal "a blatant violation" of the government's pledge not to trade weapons with Israel.
On Thursday government sources said the contract would be "unilaterally" terminated.
"The investment board for dual-use material will deny this company permission to import this equipment to our country for reasons of general interest and, immediately afterwards, the interior ministry will terminate the contract," the sources added.
Sumar's Deputy Prime Minister Yolanda Diaz said she had personally "negotiated" with the interior minister and the prime minister to pull the plug on the contract.
Spain "cannot buy arms from a government that massacres the Palestinian people", she told reporters.
Israel's military offensive has devastated Gaza and killed more than 50,000 people in the tiny coastal territory, according to the health ministry there.
Israel said it "strongly condemns" the decision to cancel the contract, and accused the Spanish government of "sacrificing security considerations for political purposes".
Spain "continues to stand on the wrong side of history -- against the Jewish state that is defending itself from terrorist attacks", Israel's foreign ministry said in a statement to AFP.
The row over the contract came as Sumar was still reeling from Sanchez's announcement on Tuesday that Madrid will boost defence spending to two percent of annual economic output this year -- the benchmark agreed by NATO allies.
The government had previously aimed to meet this target in 2029 but brought it forward under pressure from Washington.
Sanchez's minority government has struggled to pass legislation since he secured a new term in 2023 by cobbling together an alliance of left-wing and regional separatist parties traditionally hostile to NATO and alignment with US foreign policy.
- Conservative criticism -
Spain's main opposition conservative Popular Party (PP) criticised the government's decision to cancel the contract.
"When a state concludes a contract with another state, it must be respected," PP leader Alberto Nunez Feijoo told reporters.
"What is the price of cancelling this contract? Who is going to pay it?" he asked.
The Hamas attack in Israel resulted in the deaths of 1,218 people, mostly civilians, according to an AFP tally based on official Israeli figures.
Palestinian militants also seized 251 hostages in their attack and 58 remain in Gaza, including 34 the Israeli military says are dead.
Israel's military response in Gaza has caused a humanitarian crisis and killed at least 51,355 people, mainly civilians, according to the Hamas-run territory's health ministry.
The United Nations considers the figures reliable.
The International Criminal Court has issued an arrest warrant against Israeli Prime Minister Benjamin Netanyahu for war crimes and crimes against humanity in Gaza.
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