Microsoft president, Brad Smith told staff the decision was guided by the firm’s “longstanding protection of privacy as a fundamental right. We have ceased and disabled a set of services to a unit within the Israel Ministry of Defense.”

The move followed a Guardian investigation that said the Israeli military used Azure in Europe to store and analyse Palestinian phone calls at a rate of “a million calls an hour,” with data parked in Microsoft’s Netherlands facilities. The company acknowledged that “elements of the Guardian’s reporting” were true and said its probe continues.

Redmond is keeping cybersecurity assistance flowing to Israel even as it shutters services tied to surveillance, a line it pushes while resisting calls to rip up broader government contracts.

Inside the company the row has sparked noisy dissent. A sit-in at Smith’s office on 26 August ended with multiple sackings, and earlier protests disrupted events and forced security to earn its keep.

In May, Microsoft fired software engineer Joe Lopez after he interrupted chief executive Satya Nadella’s Build keynote in Seattle by shouting, “Satya, how about you show how Microsoft is killing Palestinians.” The company later dismissed more staff over policy breaches linked to the August occupation of Smith’s office.

Israel’s defence ministry declined to comment on the restrictions. Microsoft says it will keep co-operating with authorities as its review proceeds and will enforce rules that ban using its technology for mass surveillance of civilians.