The biggest Swedish pension fund has barred Israeli arms maker Elbit Systems from its investment portfolios on ethical grounds.

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Following the lead of Norway's state oil fund, Första AP-Fonden said it had banned investment in Elbit because it had built and was operating a surveillance system for a controversial barrier between Israel and the West Bank.

"The Ethical Council recommended that Elbit Systems Ltd should be excluded from each portfolio because it deems that the company can be linked to violations of fundamental conventions and norms," it said in a statement.

Israel says the barrier -- a network of walls, fences and closed military roads -- is designed to prevent attacks. The Palestinians view it as an "apartheid wall" that carves off key parts of their future state.

Israel has so far completed 413 kilometres (256 miles) of the planned 709-kilometre (435-mile) barrier, according to UN figures.

When completed, 85 percent of the wall will have been built inside the West Bank, taking land from villages like Bilin and Nilin.

The international community has condemned Israel's decision to construct the barrier.

The Swedish fund, which only had small investments in Elbit according to its ethics council chairwoman Annika Andersson, said that Grupo Ferrovial, PetroChina, Thales and Yahoo had successfully addressed its concerns about ethics violations.

Last September, Norway's state pension fund, one of the world's biggest investors, also banned Elbit from its portfolio, prompting the Israeli foreign ministry to summon Norway's ambassador in protest at the move.