Donald Trump has ordered that $25m earmarked for the care of Palestinians in East Jerusalem hospitals be directed elsewhere as part of a review of American aid, a US state department official said on Saturday.

A statement from the Palestinian foreign ministry said the cut was part of a US attempt “to liquidate the Palestinian cause” and said it would threaten the lives of thousands of Palestinians and the livelihoods of thousands of hospital employees.

“This dangerous and unjustified American escalation has crossed all red lines and is considered a direct aggression against the Palestinian people,” it said.

Trump called for a review of US assistance to the Palestinians earlier this year, saying it was meant to ensure the funds were being spent in accordance with US national interests and were providing value to taxpayers.

“As a result of that review, at the direction of the president, we will be redirecting approximately $25m originally planned for the East Jerusalem hospital network,” the state department official said on Saturday. “Those funds will go to high-priority projects elsewhere.”

The hospitals cut is the latest action by the Trump administration to have alienated Palestinians, including the recognition of Jerusalem as Israel’s capital and moving the US embassy from Tel Aviv to the city. That was a reversal of longtime US policy and led Palestinian leadership to boycott peace efforts led by Jared Kushner, Trump’s senior adviser and son-in-law.

Last month, the Trump administration said it would redirect $200m in Palestinian economic support funds for programs in the West Bank and Gaza.

At the end of August, the Trump administration halted all funding to the United Nations Relief and Works Agency for Palestine Refugees (UNRWA). Palestinian refugees reacted with dismay, warning the cuts will lead to more poverty, anger and instability in the Middle East.

Washington said UNRWA needed to make unspecified reforms and called on the Palestinians to renew peace talks with Israel. The last US-brokered talks collapsed in 2014.