The government today warned Argentina not to doubt its "determination" to protect the Falklands after a South American trading bloc announced a ban on boats with an islands flag from docking at its ports.

The foreign office said it was "very concerned" by the "latest Argentine attempt to isolate" the islands and is now in "urgent" discussions with countries in the region.

Mercosur, a trading bloc that includes Brazil, Argentina, Paraguay and Uruguay, reached the decision at a summit in the Uruguayan capital Montevideo.

Former foreign office minister Denis MacShane said the move was aimed at London and blamed the coalition for weakening Britain's international standing.

The Labour MP said: "This hostile action is aimed at London not the Falklands.

"South American leaders know that Britain has fewer friends than ever before because of David Cameron's isolationist approach in Europe and the indifference to the Obama administration as most cabinet members are close to US neo-Cons.

"Brazil and other countries know that thanks to Liam Fox's defence cuts the UK no longer has aircraft carrier capability so British maritime power projection has been fatally weakened by the Government."

Uruguayan president Jose Mujica said solidarity among South America's neighbours was key to his country's foreign policy.

He added: "For the moment, this means accepting that this territory is a colonial British position in our America."

The dispute involves a vast area of potentially mineral-rich South Atlantic waters and has created a fresh diplomatic headache for Britain, which controls the islands.

A foreign office spokesman said: "We are very concerned by this latest Argentine attempt to isolate the Falkland Islands people and damage their livelihoods, for which there is no justification.

"It is not immediately clear what practical impact, if any, this statement will have, which mirrors the language already used by the Union of South American Nations (UNASUR) in 2010. We are discussing this urgently with countries in the region.

"But no one should doubt our determination to protect the Falkland Islanders' right to determine their own political future."

Uruguayan president Jose Mujica said solidarity among South America's neighbours was key to his country's foreign policy.

He added: "For the moment, this means accepting that this territory is a colonial British position in our America."

Mr Mujica said British-flagged civilian ships that may supply the islands would be allowed to use its ports, but not military vessels.

Argentina's foreign minister Hector Timerman, whose country claims the Falklands as its own territory, thanked him for taking the position.

The Mercosur decision is the latest in a series by Latin American regional bodies designed to show solidarity with Argentina, which calls the islands Las Malvinas.

Roger Spink, president of the Falklands Chamber of Commerce, said they were a small community and felt increasingly under blockade. He told the BBC: "If we were Palestine, the European Union would be up in arms."

Last week Uruguay said it was banning ships flying the Falkland Islands flag from its ports, prompting the foreign office to call on Uruguay's ambassador in London to explain the move.