Australia has ceased providing direct aid to the Palestinian Authority (PA), with Foreign Minister Julie Bishop saying the donations could increase the self-governing body's capacity to pay Palestinians convicted of politically motivated violence.

Key points: Australia sends about $10 million in aid to the Palestine territories

Australia sends about $10 million in aid to the Palestine territories Concerns have been raised the aid may have gone towards funding violence

Concerns have been raised the aid may have gone towards funding violence In March the US passed a law that suspended some financial aid to the Palestinians

Ms Bishop said funding was cut to the World Bank's Multi-Donor Trust Fund for the Palestinian Recovery and Development Program after writing to the Palestinian Authority in late May seeking assurance that Australian funding was not going to Palestinian criminals.

Australia sends about $10 million in aid to Palestine territories. It will now direct its funds through the United Nations.

Concerns have been raised by some Coalition politicians, including backbencher Eric Abetz, that the money sent through the World Bank had gone towards funding violence in the region.

Ms Bishop said she was confident no Australian funds had been used inappropriately.

"I am confident that previous Australian funding to the PA through the World Bank has been used as intended," she said in a statement.

"However, I am concerned that in providing funds for this aspect of the PA's operations, there is an opportunity for it to use its own budget to [fund] activities that Australia would never support."

"Any assistance provided by the Palestine Liberation Organisation to those convicted of politically motivated violence is an affront to Australian values and undermines the prospect of meaningful peace between Israel and the Palestinians," she added.

Australia allocated $43 million for humanitarian assistance in the region for the current fiscal year, which began on July 1.

Australia following US lead

In March, Israeli Prime Minister Benjamin Netanyahu praised the US Government for passing a law that suspended some financial aid to the Palestinians over the stipends paid to families of Palestinians killed or jailed in fighting with Israel.

Mr Netanyahu said the Taylor Force Act, named after an American killed in Israel by a Palestinian in 2016, a "powerful signal by the US that changes the rules" by cutting "hundreds of millions of dollars for the Palestinian Authority that they invest in encouraging terrorism".

The Palestinians say the families are victims of violence.

An injured Palestinian man is evacuated during the protests. ( Reuters: Mohammed Salem )

Palestinian official Nabil Abu Rdeneh condemned the law, saying it did not "allow for the creation of an atmosphere conducive to peace".

Mr Abetz welcomed Ms Bishop's decision.

"Minister Bishop's strong and decisive decision today to ensure that the Palestinian Authority can no longer use our aid to free up money in its budget for state-promoted terrorism is very positive," Mr Abetz said.

"It is vital that we ensure that our foreign aid is not being spent on, or making money available for, the promotion of terrorism and so funnelling our aid to the Palestinian Territories through the United Nations will provide greater assurance that the Palestinian Authority's clever accounting cannot occur," he added.

Ms Bishop said the United Nations' Humanitarian Fund helps 1.9 million people, predominately in the Gaza Strip where the humanitarian situation continues to deteriorate.

ABC/AP