Canada's Conservative government said last month that for funding to continue, Hamas would also have to renounce violence against Israel and agree to stick to the terms of previous peace deals between the two sides. Hamas rejects such demands.
Peter MacKay, the foreign minister, said in a statement on Wednesday: "Canada will have no contact with the members of the Hamas cabinet and is suspending assistance to the Palestinian Authority.
"A clear commitment by the Hamas government to the principles that we and the international community have outlined remains an essential precondition for Canada to resume any assistance to the Palestinian Authority."
Canada gives C$25 million ($21 million) a year to the Palestinian Authority to fund aid projects.
Although the United States, the European Union and other donors say they are also concerned about the Hamas government, they have yet to cut assistance.
Mushir al-Masri, a Gaza-based legislator in the new Palestinian parliament, said the freeze showed that Canada was biased towards Israel.
"This hasty decision represents a collective punishment on the Palestinian people who practiced their democratic choice [in electing Hamas]," he told Reuters.
The move has been condemned
as collective punishment
MacKay's announcement came hours after Washington ordered its diplomats and contractors not to have any contacts with Palestinian ministries once the government had been sworn in on Wednesday.
Josee Verner, the International Co-operation Minister, said Ottawa would continue to "support and respond to the humanitarian needs of the Palestinian people" by working through the United Nations, its agencies and other organisations. She gave no further details.
Defenders of Israel hope that the Conservatives - who took power early last month - will be more pro-Israel than the former Liberal government.
The Israeli embassy in Ottawa welcomed MacKay's statement.
"The Canadian decision reaffirms the international community's demand ... to the new Palestinian government to stop terrorism against Israel, to recognise Israel and to abide by the previously signed agreements between the two parties," it said in a statement.
The National Council on Canada-Arab Relations said the aid freeze could harm Ottawa's reputation as an honest broker.
Hussein Amery, the council president, said: "We're disappointed and perplexed that Canada would be the first to decide to make this move."