But sources close to Arafat said the president refused to accept Quraya's resignation, tendered on Saturday after a spate of kidnappings in Gaza the day before.
"Arafat has rejected Quraya's resignation," said cabinet minister Saib Uraiqat.
"Quraya is now holding a cabinet meeting to discuss the issue with ministers," he added.
Earlier in the day, Arafat agreed to consolidate his security forces into three branches, a top Arafat aide said.
Arafat also replaced the national police chief, who was one of six Palestinians and foreigners briefly abducted in a wave of kidnappings a day earlier, and named two new top officials in a shake-up of his security organisations.
"Prime Minister Quraya told us that he has submitted his resignation to President Arafat
and he is going back
to see Arafat now to
tell him he is insisting
on this resignation"
The Palestinian leader appointed his cousin, Musa Arafat al-Qidwi, 64, as the new security chief for the Palestinian territories.
The announcements came after Arafat met Quraya, and shortly before Quraya summoned the cabinet for an urgent meeting on the security crisis in Gaza.
State of emergency
Hours earlier, Arafat's National Security Council declared a state of emergency and sent troops to protect government buildings and officials from militant factions.
A Palestinian cabinet minister also suggested the government might step down.
Commenting on Saturday after the wave of kidnappings, Uraiqat said: "If we cannot fully shoulder our responsibility, then we should open the way for others to do that."
Palestinian intelligence service
chief Amin al-Hindi (L)
Five French nationals were subsequently released, as was a Palestinian colonel and member of the Palestinian General Security, and Gaza Police Chief Ghazi al-Jabali.
Uraiqat has described the situation in Gaza as "very serious and deteriorating in a dangerous way."
He says the Palestinian Authority "should put an end to the lawlessness and chaos" that exist in the Palestinian areas.
Earlier, Palestinian authorities declared a state of emergency in Gaza after three separate kidnappings.
Two top Palestinian security chiefs submitted letters of resignation to Palestinian President Yasir Arafat. But Arafat also rejected these.
"President Arafat has rejected the resignations of Amin al-Hindi and Rashid Abu Shabak and asked them to continue in their work," a security official said, on condition of anonymity.
Hindi heads the intelligence agency, while Shabak is chief of preventive security for the Palestinian territories.
In their letter of resignation to Arafat, they said the "situation has become intolerable after what happened during the day" in Gaza.