The announcement on Sunday came after Hamas handed Mahmud Abbas, the Palestinian president, a cabinet line-up dominated by Islamists.
"We will have no contact with a government controlled by Hamas," the official in the Israeli prime minister's office told AFP asking not to be identified.
"We will not transfer any moneys until they accept the three conditions," he added, referring to demands for Hamas to renounce violence, recognise Israel and accept past peace agreements.
The official expressed confidence that the Hamas-led government would not take office until after Israel goes to polls on 28 March.
"I am sure there will be no government until Israeli elections," he said.
The Palestinian Authority president said he would convene a Palestine Liberation Organisation executive meeting in the next few days to consider the new 24-member line-up.
His spokesman Nabil Abu Rudeina said he was also busy with preparations for an Arab summit in the Sudanese capital Khartoum on the same day as the Israeli elections, in a veiled hint that Abbas might not convene parliament to approve the new government until afterwards.