An Israeli Cabinet member has postponed a trip to Egypt, amid media reports his army unit may have killed 250 Egyptian POWs during the 1967 Middle East war.
Mr Ben-Eliezer was reportedly told that he could be arrested
Binyamin Ben-Eliezer denies the allegations, saying the dead were Palestinian fighters killed in combat.
Mr Ben-Eliezer, Israel's infrastructure minister, had been due in Cairo this week to discuss natural gas imports.
"Following false publications in the Egyptian press, both sides decided to postpone," his spokesman said.
A senior Israeli official quoted anonymously by AFP said the affair was becoming a major diplomatic incident.
"The relations between the two countries are compromised," the official was quoted saying.
Israel Radio said intelligence chief Omar Suleiman, who takes a lead role in Egypt's negotiations with Israel, told Mr Ben-Eliezer not to come because he could be arrested.
The claims were aired last week in an Israeli documentary, described by its director as a "self-examination" of Israel's use of force during the war.
"In Egypt, the opposition is taking the story and distorting it into an issue to disrupt the peace," film-maker Ron Edelist said on Israel Army Radio.
The Egyptian media reports said the documentary showed that Mr Ben-Eliezer's unit killed 250 Egyptian prisoners of war in the Sinai peninsula rather than taking them to POW camps.
The affair has dominated Egyptian headlines for two days and it sparked an angry debate in parliament.
Egyptian foreign ministry officials have requested a copy of the film from the Israeli government and summon its ambassador in Cairo to explain Israel's position.
Israel captured the arid Sinai peninsula from Egypt in the Six Day war of 1967. The two sides signed a peace treaty in 1979 which saw the territory returned.
Claims that Israeli troops massacred about 1,000 Egyptian POWs in several incidents in Sinai were first raised in 1995 by Israeli military researcher Aryeh Yitzhaki.
At the time Mr Ben-Eliezer said he was not aware of any POW killings by his troops. The story soured relations between Israel and Egypt for months.