The Trump administration announced Tuesday that it is withholding funding for a controversial U.N. refugee agency for Palestinians -- but has not cut funding to the organization completely.

The State Department confirmed Tuesday that the U.S. is withholding $65 million of a planned $125 million installment to the U.N. Relief and Works Agency, which provides health care, loans and other social services to Palestinian refugees in the region.

The U.S. gives approximately $364 million to UNRWA every year -- making the U.S. the biggest contributor to the organization.

State Department spokeswoman Heather Nauert described the $65 million as “frozen and being held for future consideration.” She told reporters that the U.S. wants to see “revisions” in how UNRWA operates but would not be drawn into specifics.

Nauert added that the U.S. decided against withholding all funds as the administration wanted to be sure that schools and medical services were not shut down.

“We felt that not providing that money would risk having the organizations and the people there run out of funds and those entities would potentially have to be shut down,” she said.

The cut comes amid a growing push by the administration to get value for money at the U.N. and also to not fund agencies and countries that do not support U.S. interests.

Trump hinted at such a move in a tweet earlier this month, complaining about the amount the U.S. gives to the Palestinians and asking “why should we make any of these massive future payments to them?”

UNRWA was set up in the wake of the 1948 Arab-Israeli war to deal with displaced Palestinians, but is a frequent target of Israel, which claims it perpetuates a “right of return” that Israel rejects.

Critics claim that UNRWA uses too broad a definition for refugees, covering descendants of Palestinian refugees and those that are residents of other countries in the region. It has also been accused of promoting an anti-Israeli agenda.

Israel’s Ambassador to the U.N., Danny Danon, praised the move by the U.S., saying that UNRWA is an agency that “misuses the humanitarian aid of the international community and instead supports anti-Israel propaganda, perpetuates the plight of Palestinian refugees and encourages hate.”

“Just over the last year alone, UNRWA officials were elected to the leadership of Hamas in the Gaza Strip, UNRWA schools denied the existence of Israel, and terror tunnels were dug under UNRWA facilities,” Danon said in a statement. “It is time for this absurdity to end and for humanitarian funds to be directed towards their intended purpose -- the welfare of refugees.”

The move is likely to be strongly opposed by U.N. officials. Secretary General Antonio Guterres said ahead of the announcement on Tuesday that he was “very concerned” about reports of U.S. funding cuts and told reporters that UNRWA provided “vital services to the Palestinian refugee population.”

UNRWA's Commissioner General Pierre Krähenbühl said in a statement that while the U.S. funding was important, "this reduced contribution threatens one of the most successful and innovative human development endeavors in the Middle-East."

"At stake is the access of 525,000 boys and girls in 700 UNRWA schools, and their future. At stake is the dignity and human security of millions of Palestine refugees, in need of emergency food assistance and other support in Jordan, Lebanon, Syria, and the West Bank and Gaza Strip. At stake is the access of refugees to primary health care, including pre-natal care and other life-saving services," he said. "At stake are the rights and dignity of an entire community."

Fox News’ Ben Evansky contributed to this report.