"The five representatives of the chief rabbinate who were due to meet five Vatican representatives in Rome in March will not be able to participate in this meeting in the current state of affairs," the rabbinate's director general Oded Wiener told AFP.
"The dialogue that we began in 2000 following the visit of former Pope John Paul II cannot continue as if nothing has happened after such a decision, announced nearly on the day that the international community commemorates the Holocaust," he said.
Pope Benedict XVI has found himself in hot water with Muslims, native Indians, Poles, gays and even scientists during nearly four years as pontiff, but the current row comes in the run-up to a first visit to Jerusalem planned for May, but which might not now take place.
The pope's decision to lift the excommunication of English bishop Richard Williamson has infuriated the Jewish community since Swedish television aired an interview in which he dismissed as "lies" historians' conclusions that some six million Jews were killed in the Holocaust.
Williamson said only between 200,000 and 300,000 Jews died before and during World War II, and none in gas chambers.
Wiener said he had written to the Vatican demanding that Williamson apologise, adding that the pope's remarks on Wednesday, in which he expressed "solidarity" with Jews and condemned denial of the Holocaust, were "important... but not enough."
He did not exclude participating in the March meeting in Rome if the Vatican's response was "satisfying."
Cardinal Tarcisio Bertone, the Vatican's secretary of state, said Wednesday that the 81-year-old German pontiff had been "troubled" by Williamson's comments.
However, the head of Germany's Jewish community said she too was pulling out of dialogue with the Roman Catholic church over the issue.
"Under such conditions there will certainly be no conversation between the Church and me at the moment -- but I stress 'at the moment'," Charlotte Knobloch told the daily Rheinische Post.
"The pope is one of the most well-educated and intelligent people that the Catholic Church has and every word he speaks, he means and is also well-researched," she stated.
The chairman of the German Bishops' Conference, Robert Zollitsch, said in a statement he was working towards damage control.
"I am trying to arrange a meeting with representatives of the Central Council of Jews in Germany," he said, adding that he would fight to maintain progress made in Catholic-Jewish dialogue in recent years.
More than 200 Swiss priests and theologians also signed an open letter saying the Williamson decision was just the latest in a series of "seriously regressive" measures.
The head of the Swiss-based "Lefebvrist" fraternity, Bernard Fellay, this week distanced the community from Williamson's comments and apologised to Benedict over the remarks, according to a Vatican statement.
But a fellow member of the Priestly Society of Saint Pius X added fuel to the fire in an interview published Thursday in Italian daily La Tribuna di Treviso.
"I know that gas chambers existed at least for disinfecting but I can't say whether they caused deaths because I haven't explored the question in depth," Floriano Abrahamowicz was quoted as saying.
The Netherlands, meanwhile, urged the pope to condemn Williamson's comments.
"Not only are these views patently false, they are also shocking and offensive to many people, especially at a time that anti-Semitic slogans are again being heard in Europe," the foreign ministry said in a statement.
Foreign Minister Maxime Verhagen has insisted that the pope explicitly denounce the statements by the bishop and that he publicly apologise "for the pain and suffering he caused".
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