The law passed by a vote of 87 to 15 in the 120-seat parliament. The remainder were absent.

The Authority’s insistence on providing the stipends has long roiled Israel. Dubbed by critics as a “pay to slay” policy, the payments benefit tens of thousands of families — including those of suicide bombers — and are estimated to have amounted to more than $300 million, and take up roughly 7 percent of the Palestinian Authority’s annual budget.

“We promised to halt the salary-for-terrorists fest, and we have fulfilled our promise,” Israel’s defense minister, Avigdor Lieberman, wrote on Twitter. Referring to Mr. Abbas by his popular name, he added, “Now it’s final. Every shekel that Abu Mazen pays to terrorists and murderers will be automatically deducted from the Palestinian Authority’s budget. An effective war against terror also hits the pocket, of the terrorists, of their families and of Abu Mazen.”

Palestinian officials say that many of the prisoners or the dead were not involved in attacking Israelis, and that stopping the payments would anger many Palestinians. Mr. Abbas says that violence does not serve the Palestinian cause and that he supports only nonviolent resistance, and yet all Palestinians who are killed in the conflict are honored in Palestinian society as “martyrs” and all those in jail in Israel are considered political prisoners.

The Palestinian Cabinet denounced the Israeli law to deduct the equivalent of the stipends from their tax revenue as “financial piracy.” In a statement on Tuesday, it called the legislation “another clear Israeli violation of signed agreements.”

Israel collects the taxes on behalf of the Authority from the earnings of Palestinian day laborers, merchants who live in Palestinian territory but do business in Israel, and from customs on Palestinian imports through Israeli ports.