As Israeli forces continued their attacks on targets in the Gaza Strip, Lloyds TSB came under increased criticism for cancelling the accounts of a Palestinian charity run through a bank in Birmingham.

The Islamic Bank of Britain, based in Edgbaston, was forced to cancel the accounts of the Interpal charity by Lloyds, which is the clearing agent for IBB.

Lloyds said it could not deal with Interpal because it is proscribed in the US over alleged links to terrorist group Hamas. Interpal is fully legal in the UK, although it is currently under investigation by the Charities Commission.

But Interpal, said it had no dealings at all with the Hamas government in the Gaza Strip, and losing its accounts with the IBB would mean more suffering for the people in the area.

Politicians and businessmen have come to the defence of the charity.

Earlier this month, Kettering Town football club played in a televised FA Cup game with Interpal as their shirt sponsor. Club chairman Imraan Ladak returned a business award he had received in 2007 from Lloyds as a protest against the bank’s actions.

Richard Burden, the Labour MP for Northfield, and a member of the International Development Committee, said the group’s work was vital for the people living in Palestine.

He said: “As a member of the International Development Committee I have seen at first hand some of the excellent projects that help improve water and sanitation services in Africa and elsewhere.

“Anybody who works on development issues in the Middle East also knows that millions of Palestinians face appalling levels of poverty and deprivation – whether they are cut off from the outside world in Gaza, in the occupied West Bank or in refugee camps in other parts of the region.”

A spokeswoman for Interpal welcomed Mr Burden’s defence of the group, and said it was resigned to losing its accounts with the IBB, although it was looking for alternatives.

“It still stands until January 31, and we are just encouraging people to continue with the campaign. The money is still coming into our accounts and we can still make payments. We are looking for alternatives.”

Lloyds TSB said it would not comment on the Interpal case.