British director Ken Loach is shown at Cannes May 18 at the premiere of Looking for Eric. (Lionel Cironneau/Associated Press)

British director Ken Loach has withdrawn his film from the Melbourne International Film Festival to protest Israeli funding related to the festival.

Loach withdrew Looking for Eric, which was scheduled to screen on July 30, after the festival turned down his request to refuse money from the Israeli Embassy.

The embassy is sponsoring Israeli-born filmmaker Tatia Rosenthal, who will visit the festival to answer questions about her Annie Award-winning feature $9.99, an Australian-Israeli production.

Loach wrote to festival director Richard Moore, saying he was not protesting Israeli films or filmmakers, but objected to Israel's "illegal occupation of Palestinian land, destruction of homes and livelihoods."

But Moore's response is that the festival will not bow to "blackmail."

He said the festival is showing films with a wide range of political viewpoints and has already resisted a demand from Chinese officials to axe a documentary about an exiled Uighur leader.

"MIFF understands that that this issue is a particularly emotional one for people, but we will not participate in a boycott against the state of Israel, just as we would not contemplate boycotting films from China or other nations involved in difficult long-standing historical disputes," Moore said.

Loach was successful in getting the Edinburgh Film Festival to turn down Israeli money by threatening to withdraw Looking for Eric, a rare comedy from a usually intensely political filmmaker.

Moore's firm stance has drawn praise from Australian MPs, including Labour MP Michael Danby.

Danby said it does not make sense to boycott Israeli films, pointing out that many Israeli filmmakers are deeply critical of their own domestic politics.

"Israelis and Australians have always had a lot in common, including contempt for the irritating British penchant for claiming cultural superiority," Danby said.

He rejected comparisons of Loach's campaign to the anti-apartheid campaign against South Africa.

"Both groups of people in the Middle East have legitimate aims and rights, and that is why it has been the policy of Australian governments to support the legitimate aims of both parties," he said. "To compare the actions of Loach to the anti-apartheid movement is just wrong."

With files from the Australian Broadcasting Corp.