"The destruction and killings by Israeli terrorists would not be possible without the support and collusion of the United States of America and Europe," he said in a statement.

"The world must therefore condemn all three and act against them. The oil-producing countries can stop these atrocities by stopping all transactions in US dollars or British pounds," he said.

Mahathir, well-known for his enmity towards Israel and the West, said the United States would stop the violence if it was rendered poverty-stricken and "not able to finance war."

Mahathir also argued that economic chaos from the move would be worth the effort.

"I appeal to the world to take this simple action. Reject the dollar and the pound," he said.

"There will be economic turmoil for the whole world. But this is a price we must be prepared to pay. It would be temporary."

Mahathir was a staunch supporter of the Palestinian cause during his 22 years in power and regularly outraged Israel with incendiary comments about Jews.

Malaysia, a mainly Muslim country, has strongly condemned Israel's military campaign in Lebanon and Gaza as excessive, and will host an emergency meeting of Muslim countries on Thursday to discuss the crisis.