Israel will withhold tax revenues from the Palestinian administration until at least March, in response to the Palestinians' bid for statehood at the UN, Israel's foreign minister says.
Under current peace deals, Israel collects about $100 million every month in duties on behalf of the Palestinian Authority (PA) in the occupied West Bank. That money is primarily used to pay public sector salaries.
"The Palestinians can forget about getting even one cent in the coming four months, and in four months' time we will decide how to proceed," Avigdor Lieberman, the Israel foreign minister, said in a speech on Tuesday night.
Israel says Palestinian President Mahmoud Abbas violated previous peace accords by side-stepping stalled negotiations and securing a Palestinian status upgrade in the United Nations last month.
The December funds transfer has already been withheld, with Israel saying that the money would be used to begin payments on the $200 million the Palestinians owe the Israel Electric corporation.
Lieberman, a hardline member of Prime Minister Binyamin Netanyahu's conservative coalition government, said that the Palestinians also had another debt with the Israeli water authority.
"Israel is not prepared to accept unilateral steps by the Palestinian side, and anyone who thinks they will achieve concessions and gains this way is wrong," he said.
'Piracy and theft'
Yasser Abed Rabbo, a senior Palestinian official, said earlier this month that Israel was guilty of "piracy and theft" by refusing to hand over the funds.
The European Union has also criticised Israel for withholding the funds.
"Contractual obligations ... regarding full, timely, predictable and transparent transfer of tax and custom revenues have to be respected," it said on Monday.
Israel has previous frozen payments to the PA during times of political or security crisis, provoking strong international criticism.
The last time it took this step was when the UN cultural body UNESCO granted the Palestinians full membership a year ago.
Israel was one of nine countries who late last month voted against upgrading the Palestinians' observer status to "non-member state" at the UN General Assembly.
Hours after the UN vote, Israel said it would authorise 3,000 new settler homes in the West Bank and East Jerusalem and expedite planning work for thousands more in a geographically sensitive area close to Jerusalem.
Critics say this plan will kill off Palestinian hopes of a viable state.