The leak by the Israeli Foreign Ministry which revealed news of the meeting between the country's foreign minister, Eli Cohen, and his Libyan counterpart Najla Mangoush could jeopardise US-led efforts to normalise ties between Israel and Arab states, diplomats and analysts.
News of the meeting caused huge protests in Tripoli and the leak could mean Arab diplomats are less able to trust Israeli officials to keep future talks secret, a senior Arab diplomat told the Israeli newspaper Haaretz.
Libya and Israel have never had diplomatic relations.
While Israel has recently normalised relations with a number of Arab states, the issue remains highly controversial and it is believed other countries have not followed suit due to strong public feelings on the issue.
Strong support for the Palestinian cause in Libya led to the angry protests in Tripoli which took place on Sunday and Monday and the now-sacked foreign minister was forced to flee the country.
"The demonstrations in the streets of Libya will have an impact," the source said.
"Some countries will lose courage as a result. No leader wants to see images like those [of turmoil in Libya] in his capital."
Israel's foreign ministry announced the meeting between Cohen and Mangoush on Sunday but back-peddled a day later, following reported outrage from Mossad, Israel's foreign spy agency.
Cohen said that a leak of the meeting had already emerged, which appeared to be a swipe at Israeli intelligence, according to Haaretz.
Mangoush was fired over the revelation although some analysts have suggested she became the fall person in the affair with leading Libyan government figures likely aware of the meeting.
She insists that she rejected an official meeting with Cohen but admitted they did talk during an unplanned encounter in Rome.
Mangoush has fled the country, reportedly for her own safety, although her current whereabouts are unknown.
After the affair came to light, Libya's Prime Minister Abdul Hamid Dbeibeh visited the Palestinian embassy in Tripoli to apologise for the meeting and reaffirm his country's support for the Palestinian cause.
The US has been behind a push for Saudi Arabia to establish ties with Israel, although Riyadh has insisted that it will not normalise relations without an independent Palestinian state being established.
Cohen appears to be attempting to convince more countries to establish ties with Israel or bolster relations following a spate of visits to African and South American countries.
He recently announced that Sierra Leone and Paraguay would open embassies in Jerusalem - in a break with international consensus - after visits there.
Many of these announcements appear to have been made first by Cohen.
The leader of the Israeli opposition Yair Lapid also slammed the leak which cost Mangoush her job and put it down to Cohen's lack of experience as the country's top diplomat.