Sweden, whose citizen has been jailed by Eritrea for more than ten years without charge, has moved to block the flow of diaspora money to the isolated Red Sea nation.
Its parliament, Riksdag, is preparing legislation to block a two per cent mandatory tax collected by Eritrea from its citizens living in Sweden.
The Swedish parliament tasked its justice affairs sub committee to prepare a supplementary bill to support the decision following a recent debate on the proposal.
"We are willing to take measures if current legislations cannot put a stop to this," Mr Johan Linander, the deputy chair of the committee, told reporters after the parliamentary session.
Some parliamentarians had referred to the technical challenge of enforcing such a decision without a suitable legal framework.
The decision would be a huge flow to the finances of Eritrea, which is already under United Nations sanctions for its alleged support of terrorism in eastern Africa.
The taxes have been described in a UN report as the largest source of income for the internationally isolated Asmara government.
Eritreans living in the diaspora are forced to pay the tax with failure to comply reportedly leading to a denial of entry back home and exclusion from government services.
Those who do not pay up are also not allowed to send remittances back to their relatives.
Eritrea denies singling out those who fail to pay and says the tax is completely voluntary.
The reclusive country recently discovered gold reserves which according to UN projections have the potential to significantly increase the GDP of one of the region's poorest nations.
The European Union, of which Sweden is a member, is one of Eritrea's largest donors; a position that has been faulted in recent years by campaign groups over what they say is Asmara's poor record on human rights.
The planned punitive measure comes after Eritrean opposition supporters filed a complaint with Stockholm officials.
Sweden has been demanding that Asmara releases Eritrean-born Swedish journalist Dawit Isaak who has been in jail since 2001 for being critical of President Isaias Afewerki's government.
Successive Swedish governments have been heavily criticised for their handling of the case, with questions remaining over Dawit's fate. Nothing has been heard of him since 2005, with the government refusing to confirm is he is still alive.
Mrs Meron Estifanos, a well-known Eritrean pro-democracy activist who has relentlessly led the campaign for the release of Dawit, welcomed the decision.
"We are urging the international community to act against the endless suffering of dissidents in Eritrean prisons," she said.
Mrs Meron, who has been documenting incidences of human rights abuses by President Isaias Afewerki's government, has also testified at EU investigative meetings about missing, jailed or killed compatriots.
Eritrea often ranks last on various media and democratic freedom indices, with several citizens fleeing what they have said is an oppressive regime.