Israel on Monday signed a tax treaty with the United Arab Emirates aimed at bolstering economic ties between the two countries as they pursue normalisation, the Israeli finance minister said.

"This is a historic agreement that will stimulate the development of economic ties between the countries," Finance Minister Yisrael Katz said in a tweet announcing the deal.

He said the agreement would "provide certainty and favourable conditions for extensive business activity".

The deal, which must still be ratified by the Israeli parliament, is the latest move following the normalisation of ties between the two countries last year.

With their economies hit hard by the coronavirus pandemic, the UAE and Israel are hoping for rapid dividends from the US-brokered normalisation deal signed in September and known as the Abraham Accords.

They have already signed several treaties, including on direct flights and visa-free travel, investment protection, science and technology.

The Israeli finance ministry said the latest treaty stipulates lower taxes to encourage investment.

The UAE was only the third Arab country to normalise ties with Israel, following Egypt in 1979 and Jordan in 1994.

Bahrain, Sudan and Morocco have since followed suit.

The Abraham Accords swept away decades of consensus that there should be no relations with Israel until it makes peace with the Palestinians.

Palestinians have condemned the agreements as "a stab in the back".