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The world’s largest sovereign wealth fund has sold out of Caterpillar after its advisers alleged Israel was using the US construction equipment maker’s products to “commit extensive and systematic violations of international humanitarian law” by destroying Palestinian property.

Norway’s $2tn oil fund had been a top-10 shareholder in Caterpillar, holding 1.2 per cent in the world’s largest maker of construction equipment, worth $2.1bn at the end of June. The fund has now sold its complete holding.

It has also sold out of five Israeli banks for helping finance settlements in the occupied West Bank. That means that, within just a few weeks, the Norwegian fund has almost halved the number of Israeli companies it holds, from 61 to 33, because of intense public and political pressure.

Revelations that companies in which the oil fund had invested had maintained engines for Israeli fighter jets used to bomb Gaza triggered a wave of consternation in the Scandinavian country.

Some smaller opposition political parties have called for the fund to exit Israel completely and its chief executive to resign before parliamentary elections in Norway in two weeks’ time.

The divestment of Caterpillar marks the first time the oil fund has sold out of a non-Israeli company because of actions in Israel and the Palestinian territories.

The fund sold out on the basis of a recommendation from the independent Council on Ethics, a body set up by Norway’s government to advise it on when to exclude companies from its portfolio for breaches of international law.

The Council said: “Bulldozers manufactured by Caterpillar are being used by Israeli authorities in the widespread unlawful destruction of Palestinian property.”

It added: “There is no doubt that Caterpillar’s products are being used to commit extensive and systematic violations of international humanitarian law. The company has also not implemented any measures to prevent such use.”

The fund also announced late on Monday night that it had sold out of First International Bank of Israel and its parent company FIBI Holdings, Bank Leumi Le-Israel, Mizrahi Tefahot Bank, and Bank Hapoalim, all for providing financial services necessary for the construction of Israeli settlements in the West Bank which are judged to be illegal under international law.

All six companies did not immediately respond to requests for comment late on Monday evening. The fund announced it had divested from six companies last week but did not name them until it had finished selling all its stakes.

Jens Stoltenberg, Norway’s finance minister and a former head of Nato, told the Financial Times in an interview published on Monday that the fund had found the “right balance” on Israel despite facing “dilemmas” and “difficult decisions”.

Some Norwegian officials are worried that the fund is in an almost impossible position in which it needs both to respond to strong public opinion worried about Israeli conduct in Gaza and to keep the US — a strong supporter of Tel Aviv — on side.

A few have expressed private concerns that, should the fund sell out of too many Israeli companies, some US states could invoke anti-boycott laws that could negatively affect the investor and Norway.