Fethi Nourine and his coach Amar Benikhlef gave individual statements to the media announcing their withdrawal from the competition to avoid meeting an Israeli athlete during the event, the IJF said in a statement.
Nourine's withdrawal was "in total opposition to the philosophy of the International Judo Federation", it said.
"The IJF has a strict non-discrimination policy, promoting solidarity as a key principle, reinforced by the values of judo," it said.
The IJF launched an investigation into the case, leading to a temporary suspension of Nourine and Benikhlef.
The Algerian Olympic Committee withdrew the accreditation for both the athlete and coach and would send them home, applying sanctions accordingly, the IJF said, without further elaboration on the type of sanctions.
Attempts to reach Nourine for comment were not successful.
On Friday, Nourine told Algerian media that his political support for the Palestinian cause made it impossible for him to compete against Israeli Tohar Butbul.
The 30-year-old was due to face Sudan's Mohamed Abdalrasool on Monday for his first match in the men's 73 kg class. A victory would have paired him with Butbul - who has a first-round bye - in the next round.
It is not the first time that Nourine has withdrawn from competition to avoid facing an Israeli opponent. He pulled out of the 2019 world championships in Tokyo for the same reason.
Tensions in the Israeli-Palestinian conflict flared again this year as confrontations in contested Jerusalem triggered cross-border clashes.
Athletes from other countries, including Iran and Egypt, have also in the past refused to compete against Israelis.