Israel's foreign minister has described the newspaper report as a blood libel
Israel is to lodge an official complaint with Sweden over claims in a newspaper that Israeli soldiers killed Palestinians to sell their organs.
The article was published in the Swedish tabloid Aftonbladet this week.
The Swedish ambassador to Israel condemned the newspaper article as "shocking and appalling".
The government in Stockholm has not issued a similar condemnation, and Israeli foreign ministry officials have reacted furiously.
"It is regrettable that the Swedish foreign ministry does not intervene when it comes to a blood libel against Jews," Israeli Foreign Minister Avigdor Lieberman said.
"[This] reminds one of Sweden's conduct during World War II, when it also did not intervene."
In a blog post on Thursday evening, Sweden's Foreign Minister Carl Bildt wrote that he would not condemn the article, and that freedom of expression is part of the Swedish constitution.
Mr Bildt added that condemnation of anti-Semitism is "the only issue on which there has ever been complete unity in the Swedish parliament".
The story in Aftonbladet - Sweden's biggest-selling daily newspaper - claimed that Israeli soldiers snatched Palestinian youths and returned their dismembered bodies a few days later.
The newspaper claimed that these incidents date as far back as 1992.
The Israeli press is reporting that the country's foreign ministry is considering its options in response to Sweden's position, among them postponing a scheduled visit to Israel by Mr Bildt.
The Swedish foreign minister is due to travel to the country in 10 days.