Israeli Agriculture Minister Uri Ariel threatened on Monday to cut off water to Jordan in response to King Abdullah's decision to cancel a land-annexing article in its peace deal with Tel Aviv.
Mr Ariel said in an interview with Israel's Channel 1 that water supplies to Amman would be reduced from four to two days a week if Jordan terminates the agreement of the 1994 peace treaty that allows the Israeli government and farmers to use Jordanian lands of Baqura and Ghamr near their shared border.
On Sunday, Jordan's King Abdullah II announced his decision and said that “Baqoura and Ghamr are Jordanian lands and will remain Jordanian and we will exercise full sovereignty over our territory".
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Under their peace agreement, Jordan agreed to grant Israeli farmers and military officers free access to the enclave.
King Abdullah said on Sunday he informed Israel of his decision. "We are practising our full sovereignty on our land," he said. "Our priority in these regional circumstances is to protect our interests and do whatever is required for Jordan and the Jordanians."
King Abdullah has been under increasing public pressure to end the arrangements with Israel. The leases expire next year, and the deadline for renewing them is Thursday.
Israeli Prime Minister Benjamin Netanyahu said on Sunday that "Jordan reserved the right to receive the territory", but said he expected to enter negotiations with Jordan "about the possibility of extending the existing agreement".
But he said that Israel "will enter negotiations with it on the possibility of extending the current arrangement".
Under the terms of peace treaty, the lease would be automatically renewed unless either of the parties notified the other a year before expiry that it wished to terminate the agreement, the Jordanian Foreign Ministry said in a statement on Sunday.
Negotiations over ending the "special regime" of the two areas would be tough with Jordan facing thorny legal issues to reclaim the land where Israeli laws now apply.
Mr Ariel called on Mr Netanyahu to persuade the king to renew the peace treaty. "Jordan needs Israel more than Israel needs Jordan," he said.
Baqura, in the northern Jordan Valley, was captured by Israel in 1950. Ghamr, near Aqaba in southern Jordan, was seized in the 1967 Arab-Israeli war.
Jordan is one of only two Arab states that has a peace treaty with Israel and the two countries have a long history of close security ties.
Former Israeli Ambassador to Jordan, Oded Eran, said he was not surprised by King Abdullah's decision, adding that there is still time for the two countries to renegotiate the agreement.
The Israeli opposition accused Mr Netanyahu of failing to manage foreign policy and creating issues with neighbouring Jordan, prompting Amman to take this decision.
But the peace treaty with Israel is unpopular and pro-Palestinian sentiment is widespread in Jordan.
Activists and politicians have been vocal against a renewal they say was humiliating and perpetuates Israeli "occupation" of Jordanian territory. Such criticism prompted demonstrations in Amman last Friday, where marchers demanded the restoration of Baqura and Ghamr.
Anti-government warnings were submitted to Jordanian courts demanding against the renewal of the peace agreement with Israel.
The treaty initiated Israeli-Jordanian cooperation in a range of strategically important realms, including water scarcity.
Apart from some misunderstandings, the two countries have consistently worked together on water allocation since 1994.
Under an annex to the peace agreement, Israel uses about 1,000 acres of agricultural land in the southern sector of its border with Jordan in the Wadi Araba desert where cash crops are exported to European and US markets.
In 2013, Jordan signed a memorandum of understanding with Israel and Palestine to implement the first phase of the "Red-Dead" project.
It would desalinate seawater at the Jordanian port of Aqaba and pump 200 million cubic metres of leftover brine into the Dead Sea.
Under that deal, which aims to increase fresh water supplies for Jordan, the Palestinians and Israel and revitalise the Dead Sea’s falling water levels, Israel agreed to increase water sales to the Palestinian Authority by 20m to 30m cubic meters a year.
But, political ties between the two have been strained over the Middle East peace process. An incident last year in which an Israeli security guard killed two Jordanian citizens within the Israeli embassy compound added to the tensions.
It led to the closure of the Israeli embassy in Amman, the Kingdom said it would not allow Israel to reopen its embassy until it launched legal proceedings against the security guard.
Since then, high-level talks on water project have been suspended between the two countries.