The US government is cutting more than half of its planned funding to the United Nations agency for Palestinian refugees, a move that could prove catastrophic for millions of people in need.

The Department of State announced on Tuesday that it was withholding $65m out of a $125m aid package earmarked for the United Nations Relief and Works Agency for Palestinian Refugees (UNRWA).

In a letter, the department said that additional US donations would be contingent on major changes by UNRWA.

Those funds are "frozen for future consideration", Heather Nauert, State Department spokeswoman, told reporters.

For nearly 70 years, UNRWA has been the lifeline to the more than five million registered Palestinian refugees in the occupied territories and Lebanon, Jordan and Syria.

It offers support in food supply, access to education, healthcare, social services and employment.

"This is going to be a big blow," Al Jazeera's James Bays, reporting from the UN headquarters in New York, said of the move by the US, which is UNRWA's largest donor supplying almost 30 percent of its budget.

"UNRWA is the agency that deals with the needs of so many desperate people," he added.

'Political dimension'

The announcement came after US President Donald Trump had threatened on January 3 to cut aid to Palestinians.

In a series of tweets, Trump had said: "... We pay the Palestinians HUNDRED OF MILLIONS OF DOLLARS a year and get no appreciation or respect.

"... With the Palestinians no longer willing to talk peace, why should we make any of these massive future payments to them?"

The posts came less than a month after his controversial decision to recognise Jerusalem as Israel's capital, a move that prompted widespread international condemnation and led Palestinian leaders to say that they would "no longer" accept any peace plan put forward by the United States.

Following the US threats to cut aid, Israeli Prime Minister Benjamin Netanyahu called for UNRWA to be scrapped and accused the agency of helping "fictitious refugees".

Antonio Guterres, the UN secretary-general, said on Tuesday he had not been informed of Washington's decision.

"First of all, UNRWA is not a Palestinian institution, UNRWA is a UN institution," Guterres said, expressing his deep "concern" about the move.



If the agency is not in a position to provide "vital services" and emergency support it will create a "very very serious problem," he told reporters.

"In my opinion, and an opinion that is shared by most international observers, including some Israeli ones, it [UNRWA] is an important factor of stability."

Hanan Ashrawi, a senior member of the Palestine Liberation Organization, said the US seemed to be following the Israeli government's "instructions to gradually dismantle the one agency that was established by the international community to protect the rights of the Palestinian refugees and provide them with essential services."

She said in a statement that Trump's administration was "targeting the most vulnerable segment of the Palestinian people and depriving the refugees of the right to education, health, shelter and a dignified life", warning that the US was "creating conditions that will generate further instability throughout the region".

Al Jazeera's Bays said there was also "a political dimension" to the US move.

"Trump has said he is going to try and come up with the 'deal of the century' between Israelis and Palestinians - and yet he has now recognised Jerusalem as Israel's capital and cut the funding to UNRWA," said Bays.

"One of the sides feels very strongly now that he is not an honest broker."

'There will be a revolution'

Trump's threat had cast doubt on the fate of millions of Palestinian refugees, with many expressing fear about the impact of such a move.

"If the wakala [UNRWA] goes away, there will be no education, no healthcare, no sanitation," Yazan Muhammad Sabri, an 18-year-old Palestinian refugee in Dheisheh camp told Al Jazeera last week.

"There won't be anything - everything will disappear."

Salah Ajarmeh, a 44-year-old refugee living in Aida camp, had said that "if the services stop, there will be a revolution".

"Palestinian uprisings began in the refugee camps in Jordan and Syria, and this will happen again."

Jan Egeland, secretary general of the Norwegian Refugee Council, also urged the US government to reverse its decision.

"The move will have devastating consequences for vulnerable Palestinian refugees across the Middle East, including hundreds of thousands of refugee children in the West Bank and Gaza, Lebanon, Jordan and Syria who depend on the agency for their education," he said in a statement.

"It will also deny their parents a social safety net that helps them to survive, and undermine the UN agency's ability to respond in the event of another flare-up in the conflict."