Ethiopian Airlines said on Tuesday it had suspended flights to neighbouring Eritrea because its bank account there was frozen.

The carrier's CEO Mesfin Tasew told a news conference that the Eritrean Civil Aviation Authority had blocked money transfers from Ethiopian Airlines' bank account in the Eritrean capital city Asmara.

Eritrea had previously said it would suspend all Ethiopian Airlines flights at the end of this month.

Flights from Ethiopia to Eritrea had resumed in 2018 after two decades, following a peace deal and resumption of diplomatic relations between the two neighbours that earned Ethiopia's Prime Minister Abiy Ahmed a Nobel peace prize a year later.

"We couldn't continue in such situation and we have decided to suspend the flight as of today," Mesfin said.

In a statement late on Monday, Ethiopian Airlines had said it would try to rebook affected passengers on other airlines at no additional cost or offer refunds.

Ethiopian is ranked the largest airline in Africa by revenue and profit by the International Air Transport Association.

Five diplomats told Reuters the suspension of flights signalled that relations between Asmara and Addis had soured significantly, but the risk of conflict was unlikely for now.

The two countries severed ties in 1998 when a two-year war started over their disputed border.

Eritrea fought alongside Ethiopia in a war that erupted in November 2020 against regional forces from Ethiopia's Tigray region, but relations soured once again after Asmara was excluded from the peace talks that ended that conflict two years later, and because some of its troops remain in Tigray.

Eritrean Information Minister Yemane Gebremeskel did not immediately respond to a request for comment.