Norway's US$2 trillion wealth fund, the world's largest, said last week it had divested from Caterpillar on ethics grounds over the use of the company's products by Israeli authorities in Gaza and the Israeli-occupied West Bank.

The fund's ethics watchdog said that in its assessment, Caterpillar's products such as bulldozers were being used by Israeli authorities "to commit extensive and systematic violations of international humanitarian law" such as the "widespread unlawful destruction of Palestinian property".

The watchdog said Caterpillar has "not implemented any measures to pre­vent such use". Caterpillar has not responded to requests for comment on the move by the fund, which is operated by Norway's central bank.

"We are very troubled by the Norwegian sovereign wealth fund's decision, which appears to be based on illegitimate claims against Caterpillar and the Israeli government," a US State Department spokesperson said.

"We are engaging directly with the Norwegian government on this matter."

Trump ally and Republican US Senator Lindsey Graham has suggested Washington should impose tariffs and visa revocations in retaliation.

In Norway, Finance Minister Jens Stoltenberg said there was a division of roles between the finance ministry, the central bank and the fund's ethics watchdog, which makes recommendations to divest from companies if they breach its ethical guidelines, agreed by parliament.

"The government is not involved in assessing individual companies," Stoltenberg said in an emailed statement to Reuters.

"The decision to exclude companies is an independent decision made by the Executive Board of Norges Bank, in accordance with the established framework. It is not a political decision."

Stoltenberg also said he had been in touch with US President Trump's economic adviser, Kevin Hassett, on Tuesday.

"We discussed trade and tariffs, economic sanctions against Russia and support for Ukraine," he said. "The pension fund was not a topic of discussion."

The fund's operator, Norges Bank Investment Management, a unit of the central bank, declined to comment and referred inquiries to the finance ministry.

The foreign ministry did not immediately reply to a request for comment.

Firms have faced protests over ties with Israel as the humanitarian crisis in Gaza from Israel's military assault has mounted, and images of starving Palestinians, including children, have sparked global outrage.

US ally Israel's post-Oct. 7, 2023, assault on Gaza has killed tens of thousands of people, internally displaced Gaza's entire population and prompted accusations of genocide and war crimes at international courts and from several rights groups. Israel denies the accusations.

The latest bloodshed in the decades-old Israeli-Palestinian conflict was triggered in October 2023 when Hamas militants attacked Israel, killing 1,200 people and taking about 250 hostages, Israeli tallies show.