BBC Rome Correspondent Orla Guerin: This case has driven a deep wedge between two Nato allies

Other defence contracts are under review and the Turkish Defence Ministry has warned the diplomatic row may cost its Nato ally a $3.5bn tender to build 145 attack helicopters.

Several well-known Italian companies including Olivetti, Pirelli and Benetton have also been hit by the boycott. Italy's exports to Turkey were worth $4.5bn last year.

Abdullah Ocalan: under house arrest

Ankara says Mr Ocalan, who was arrested on his arrival in Italy over a week ago, is a terrorist responsible through his PKK seperatist group for the deaths of 30,000 people.

But Italy says its constitution bans extradition to countries with the death penalty.

Mr Ocalan, who is claiming political asylum, was released by a court in Rome on Friday. He is now under police surveillance at a secret location.

The court ruled that Mr Ocalan must stay in Rome because of another arrest warrant issued by Germany, which wants him on charges of incitement to murder.

In a statement, Mr Ocalan told thousands of Kurds who have travelled across Europe to support him, to return home and continue backing the Kurdish cause.

Following the PKK leader's release, Turkey stepped up its diplomatic onslaught, saying Italy had "opened its arms to the world's bloodiest terrorist".

Crowds in Ankara continued a sixth day of protests outside the Italian embassy on Saturday where they shouted anti-Italian slogans.

Demonstrators have burned the Italian flag and an effigy of Mr Ocalan.

As the row escalates, Italy's Foreign Ministry has advised nationals not to travel to Turkey.

It has says anyone who does travel to Turkey should "exercise caution" and avoid places that are venues for large demonstrations.

European Union backs Italy

The EU presidency, currently held by Austria, has expressed full solidarity with Italy's determination to abide by its constitution, which bars extradition to any country that has the death penalty.

But Turkish Prime Minister Mesut Yilmaz has warned Italy it is risking Turkey's "eternal enmity".

He said: "Italy is attempting to make peace with terrorism. It faces the danger of earning Turkey's eternal enmity.

"The Italian Government is making one mistake after another... Every mistake made on this issue will certainly have a very high price."

Turkish officials complain the PKK leader has been treated like an honoured guest.

Ankara Correspondent Chris Morris: "Gloves are off"

But Italian Prime Minster, Massimo D'Alema, has insisted that Rome will not bow to threats or pressure, saying it will abide by the decision of the court.

The BBC's correspondent in Rome, Orla Guerrin, says the crisis is likely to come to a head when Italy announces its decision on Mr Ocalan's bid for political asylum.