The row was triggered by recent comments made in parliament by Swedish Foreign Minister Margot Wallstrom, who spoke out against the recent spate of Palestinian knife and car-ramming attacks against Israelis.
Wallstrom supported Israel's right to defend itself, but raised concerns over the prospect of heavy-handed reprisals against Palestinian people.
"The response [to Palestinian attacks] must not be of the kind — and this is what I say in other situations where the response is such that it results in extrajudicial executions or is disproportionate in that the number of people killed on that side exceeds the original number of deaths many times over," Wallstrom said.
Palestinian attacks are estimated to have killed 19 Israelis and one American citizen.
Sweden Threatened With Peace Talks Expulsion
However, Israeli leader Benjamin Netanyahu, who interpreted Wallstrom's speech as an accusation that Israel was carrying out "extrajudicial executions"' was highly critical of Stockholm.
And I also condemn the Swedish FM's scandalous remarks. Apparently she expects Israelis to offer their necks to whoever wants to stab them.— PM of Israel (@IsraeliPM) December 6, 2015
"I condemn the statements, the scandalous statements, made by the foreign minister of Sweden," Netanyahu told reporters on Sunday.
"The [Swedish] foreign minister suggests that Israeli citizens simply give their necks to the murderers trying to stab them with knives. The citizens of Israel and its security forces have the right to defend themselves.
"The citizens of Israel have to deal with terrorism that receives support from irresponsible and false statements like that," said Netanyahu.
Tzipi Hotovely, Israel's Deputy Foreign Minister also joined in on the criticism of Stockholm, saying that she and Netanyahu were going to meet to figure out a "sharp response" to the comments, hinting that Sweden may be excluded from the Israeli-Palestinian peace process.
"Sweden has crossed all red lines in relations with Israel. This is defamation of Israel and the statements are distancing Sweden from the ranks of enlightened nations that can take part in the dialogue about rights in the region," Hotovely told Army Radio.
Sweden Hits Back
However, Swedish officials hit back in a joint statement from Wallstrom and Prime Minister Stefan Lofven, saying that the foreign minister had spoken in general terms and implied that the comments had been deliberately misunderstood.
"The Minister for Foreign Affairs did not, as alleged, say that extrajudicial executions occur in Israel […] The situation in the Middle East is difficult enough without having to be encumbered by misunderstandings about anybody's intentions," the statement read.
The fallout isn't the first between Israel and Sweden in recent times, with Israeli officials outraged at Sweden's decision to formally recognize Palestine as a state last year.
The diplomatic row comes amid increased tension between Israel and some of its traditional western allies.
Israel was involved in another dispute with the EU over the bloc's decision to specifically label exported products originating from the occupied Palestinian territories, which the EU considers to be outside of the country's internationally-recognized borders.
As a result Israel said it was suspending contacts with European Union bodies involved in Israeli-Palestinian peace talks.