JERUSALEM (Reuters) - The U.N. agency that helps Palestinian refugees expressed concern on Friday over moves by the mayor of Jerusalem to close down its operations in the city.

A man walks next to a sign at the entrance to the U.N. Relief and Works Agency (UNRWA) West Bank Field Office complex in East Jerusalem January 3, 2018. REUTERS/Ammar Awad

Mayor Nir Barkat said on Thursday he had developed a plan to end the Jerusalem operations of the United Nations Relief and Works Agency (UNRWA), which aids Palestinians displaced by the 1948 war of Israel’s founding and to millions of their descendants, and to replace them with Israeli services.

UNRWA has faced a financial crisis since the United States in August announced it was cutting aid to the body, calling it an “irredeemably flawed operation” with an “endlessly and exponentially expanding community of entitled beneficiaries”.

Barkat, on Twitter, said the U.S. decision created an opportunity to change the current situation, which he said would otherwise “perpetuate the ‘refugee problem’ and encourage incitement”.

UNRWA, in a statement, said it “expresses its concern about recent statements made by the mayor of Jerusalem on its operations and installations in East Jerusalem”.

“UNRWA has continuously maintained operations in the occupied Palestinian territory including East Jerusalem since 1967 with the cooperation and on the basis of a formal agreement with the State of Israel, which remains in force,” it said.

It said it provided education, health, relief and social services in East Jerusalem, which Palestinians want as a capital of a future state.

Barkat said that under his plan the municipality would take over education, welfare and health services. “We provide services for all residents alike - there are no refugees in our city,” he said.

Israel regards all of Jerusalem as its capital. The government’s Central Bureau of Statistics says it has a population of 900,000, including about 340,000 Arabs.

Israeli Prime Minister Benjamin Netanyahu has in the past called for UNRWA to be dismantled.