DNA loop extrusion by SMC proteins is a key process underlying chromosomal organization. It is unknown how loop extruders interact with telomeres where chromosome ends are covered with a dense array of tens of neighboring DNA-binding proteins. Using complementaryin vivoandin vitrosingle-molecule approaches, we study the interaction between loop-extruding condensin and arrays of Rap1, the double-stranded-DNA-binding telomeric protein ofSaccharomyces cerevisiae. We show that dense linear Rap1 arrays can completely halt DNA loop extrusion, where the blocking efficiency depends on the array length and the DNA gap size between neighboring proteins. In cells, Rap1 arrays in the chromosome are found to act as contact insulators and to accumulate condensin at their borders, with direct implications for the resolution of dicentric chromosomes produced by telomere fusions. Our findings show that linear arrays of DNA-bound proteins can efficiently halt DNA loop extrusion by SMC proteins, which may impact a wide range of cellular processes from telomere functions to transcription and DNA repair.