The US State Department claims the money is 'being frozen, not canceled'
The United States government is cutting more than half of its planned funding to the United Nations agency for Palestinian refugees, UNRWA.
US State Department spokesperson Heather Nauert said her government delivered a letter to UNRWA on Tuesday.
The department is to withhold US$65m (€53.1m) out of a US$125m (€102m) tranche earmarked for the agency.
The total US contribution in 2017 was above US$350m (€286m).
On the US$65m, Ms Nauert said: "That is money that will be held for future consideration.
"It’s money that's being frozen at this time. It's not being canceled. It’s just being held for future consideration."
"One of the things that the United States would like to do is see some revisions made in how UNRWA operates."
"And one of the things this administration would like to do, just as we talk about UN reform, is take a look at UNRWA, trying to make sure that the money is best spent and best spent so that people can get the services, whether it’s school or the health care services, that they need."
She added: "This is not aimed at punishing anyone. The United States government and the Trump administration believe that there should be more so-called burden sharing to go around.
"The United States has been, in the past, the largest single donor to UNRWA. We would like other countries - in fact, other countries that criticse the United States for what they believe to be our position vis-a-vis the Palestinians, other countries that have criticised us - to step forward and actually help with UNRWA, to do more."
She also said the US will be going to different countries "and we will ask them to step up to the plate and provide additional money."
The United Nations Relief and Works Agency for Palestine Refugees (UNRWA) is funded almost entirely by voluntary contributions from UN member states.
The UNRWA Commissioner-General Pierre Krähenbühl said the agency faces "a formidable challenge in upholding its mandate".
"Since UNRWA began its operations in May 1950, every US administration - from President Truman onwards - has stood with and provided strong, generous and committed support to our agency.
"The US has consistently been UNRWA's largest single donor, something we sincerely thank the American people for, and countless American decision-makers - presidents, members of Congress, diplomats and civil servants, who embodied the commitment of assisting a vulnerable people through UNRWA.
"Funding UNRWA or any humanitarian agency is the discretion of any sovereign member state of the United Nations.
"At the same time, given the long, trusted, and historic relationship between the United States and UNRWA, this reduced contribution threatens one of the most successful and innovative human development endeavors in the Middle East.
"At stake is the access of 525,000 boys and girls in 700 UNRWA schools, and their future.
"At stake is the dignity and human security of millions of Palestine refugees, in need of emergency food assistance and other support in Jordan, Lebanon, Syria, and the West Bank and Gaza Strip.
"At stake is the access of refugees to primary health care, including pre-natal care and other life-saving services. At stake are the rights and dignity of an entire community.
"The reduced contribution also impacts regional security at a time when the Middle East faces multiple risks and threats, notably that of further radicalisation.
"In addition, the US government has consistently commended our high-impact, transparency and accountability.
"This was reiterated, once again, during my latest visit to Washington in November 2017, when every senior US official expressed respect for UNRWA’s role and for the robustness of its management."
While the Palestine Liberation Organisation (PLO) tweeted:
The U.S. Administration seems to be following Netanyahu’s instructions to gradually dismantle the one agency that was established by the— Palestine PLO-NAD (@nadplo) January 16, 2018
international community to protect the rights of the Palestinian refugees and
provide them with essential services. #Palestine #UNRWA pic.twitter.com/feqKnKKL5Z
It comes the Central Council of the PLO recommended revoking the recognition of Israel.
It also called on the international community to "shoulder its responsibilities" on the basis of relevant United Nations resolutions to end "the Israeli occupation and enable the State of Palestine to achieve its independence".
On January 2nd, US President Donald Trump questioned US funding for Palestinians, claiming: "With the Palestinians no longer willing to talk peace, why should we make any of these massive future payments to them?"
...peace treaty with Israel. We have taken Jerusalem, the toughest part of the negotiation, off the table, but Israel, for that, would have had to pay more. But with the Palestinians no longer willing to talk peace, why should we make any of these massive future payments to them?— Donald J. Trump (@realDonaldTrump) January 2, 2018
Tensions have been growing in the region since Mr Trump moved to unilaterally recognise Jerusalem as the capital of Israel.
Ireland voted in favour of a United Nations General Assembly resolution in December, criticising the move by the United States.
The assembly voted 128-9 to declare the decision by the US as "null and void".