The Moroccan government said Sweden had been campaigning to boycott products from the territory of Western Sahara, which has been disputed since a war two decades ago.
“We are heading towards a boycott of Swedish companies according to the principle of reciprocity after similar campaigns to boycott Moroccan companies,” a statement issued after Thursday's cabinet meeting said.
The announcement comes days after Moroccan authorities blocked the opening of the country's first Ikea store. While officials said the Swedish furniture giant lacked a “conformity permit”, sources claimed the underlying reason was Sweden's position on the Western Sahara conflict.
Western Sahara was a Spanish colony up until 1975 and Morocco today claims two thirds of the area as its own. However, independence movement Polisario Front wants to break away and form a new state called the Sahrawi Republic.
Sweden and its Scandinavian neighbours largely support self-determination for Western Sahara. But other nations, such as France and Spain, have been accused of backing the Moroccan side.
No western powers have so far formally recognized Polisario's planned Sahrawi Republic, which is backed by a number of members of the African Union.
The Swedish parliament voted to recognize Western Sahara in 2011, but the then centre-right government rejected the motion.
Prime Minister Stefan Löfven's ruling centre-left coalition, which recognized Palestine after winning Sweden's general election last September, said in March this year that formally supporting an independent Western Sahara was not currently on the table.
Swedish Foreign Minister Margot Wallström confirmed on Thursday that Sweden's policy on the territory was the subject of an ongoing internal review, but denied a decision had been made on recognition.
“The government does not want to pre-empt this examination. Therefore, the issue of recognition is currently not on the table,” she said in a statement.
The minister also denied that Sweden was boycotting exports from Morocco.