Human rights group Amnesty International said in a report published Tuesday that Israeli restrictions prevented Palestinians from receiving enough water in the West Bank and Gaza Strip.
The report said Israel's daily water consumption per capita was four times higher than that in the Palestinian territories.
"Water is a basic need and a right, but for many Palestinians obtaining even poor-quality, subsistence-level quantities of water has become a luxury that they can barely afford," said Amnesty official Donatella Rovera.
A spokesman for Prime Minister Benjamin Netanyahu dismissed Amnesty's statement that Israel was depriving the Palestinians of water as "preposterous."
Israel says it has met its obligations under the 1993 Oslo agreement while Palestinians have failed to meet their own requirements to recycle water and were not distributing water efficiently.
"Israel supplied Palestinians 20.8 million cubic liters above and beyond what it is obliged to do under the water agreement," said Netanyahu's spokesman, Mark Regev.
Israel, itself facing unprecedented water shortages and rising tariffs, controls much of the West Bank's supplies, pumping from an aquifer that bridges Israel and the territory.
Israel sells some water back to the Palestinians under quotas agreed in the Oslo accords that rights groups say have not been increased in line with population growth.
The report said Gaza's coastal aquifer, its sole fresh water resource, had been polluted by infiltration of seawater and raw sewage and degraded by over-extraction.
Israel and Egypt maintain a blockade of the Gaza Strip, an area taken over by the Islamist Hamas movement, which ousted Palestinian forces loyal to President Mahmoud Abbas in a bloody 2007 coup.
Israel's water authority called the report "biased and incorrect, at the very least" and said that while there was a water gap, it was not nearly as big as presented in Amnesty's findings.
Amnesty said water consumption in Israel was 300 liters a day per person and 70 liters a day in the West Bank and Gaza Strip.
Israel's water authority said those numbers were misleading because they took into account internal distribution and did not compare total water consumption. It said the total figures were 408 liters per day for Israelis and 287 liters for Palestinians.
The Amnesty report described how Palestinians in the West Bank relied on water from tankers that were forced to take long detours to avoid Israeli military checkpoints and roads off-limits to Palestinians.
The situation had led to steep increases in water prices, the report said.
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