The administration of US President Donald Trump said Friday that it had canceled more than $200 million in aid for the Palestinians in the Gaza Strip and West Bank.
A senior State Department official said the decision, made "at the direction of the president," came after a review of aid programs to the Palestinian territories.
The $200 million in funding for programs in the West Bank and Gaza will "now address high-priority projects elsewhere," said the official.
The move "takes into account the challenges the international community faces in providing assistance in Gaza, where Hamas control endangers the lives of Gaza's citizens and degrades an already dire humanitarian and economic situation," he said.
The United States in January had already made drastic cuts to its contribution to the UN agency for Palestinian refugees UNRWA.
Relations between the US administration and the Palestinian Authority took a nosedive after Trump announced the US decision to recognize Jerusalem as Israel's capital.
The Palestinians have suspended contacts with the administration and consider that it can no longer play a mediation role in the Middle East peace process.
The decision to cut Palestinian funding comes amid a humanitarian crisis in Gaza, which has seen a surge of violence since Palestinian protests began in March.
At least 171 Palestinians have been killed by Israeli fire during demonstrations near the border with Israel.
The decision comes amid a vacuum in Middle East peace efforts as the administration presses on with work on a peace plan that has been under discussion for months.
Democratic Senator Patrick Leahy accused the White House of engaging in a "series of provocative and harmful acts" instead of coming up with a coherent policy to address the Israeli-Palestinian conflict.
Trump has tasked his son-in-law Jared Kushner and lawyer Jason Greenblatt to draft the peace proposals, saying earlier this week that there would be something "very good" for the Palestinians.
The Palestinians see the eastern part of the disputed city as the capital of their future state.