The U.S. is withholding $65 million in funding to the United Nations (U.N.) agency responsible for helping Palestinian refugees, the State Department said Tuesday.

The U.S. will still transfer $60 million to the U.N. Relief and Works Agency (UNRWA), but will withhold $65 million of what was originally a $125 million tranche of funding.

"It's money that's being frozen at this time," Heather Nauert, a State Department spokeswoman, said at a press briefing. "It's not being canceled. It's just being held for future considerations."

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Nauert said that additional U.S. funding will be dependent on changes being made at the agency, which provides health care and social services to Palestinians in the West Bank, the Gaza Strip and neighboring countries.

The State Department notified UNRWA of the decision in a letter on Tuesday, Nauert said. A UNRWA official confirmed to The Hill that it had been notified of the administration's decision.

Nauert said that the decision was rooted in a concern for how UNRWA is managed, and that the decision to hold the funding was not politically motivated. She also said that the U.S. expected other countries to “step up to the plate” and provide more funding for the agency.

The Associated Press first reported the decision to withhold the funding.

The State Department said earlier this month that the $125 million — about a third of Washington's annual donations to the agency — had not been transferred, pending a review of funding to UNRWA.

Nikki Haley Nimrata (Nikki) Haley'The soul' versus 'law and order' Author Ryan Girdusky: RNC worked best when highlighting 'regular people' as opposed to 'standard Republicans' GOP lobbyists pleasantly surprised by Republican convention MORE, the U.S. ambassador to the U.N., also threatened earlier this month to freeze funding for the agency, unless the Palestinians returned to the negotiating table with Israel — a proposition they rejected after President Trump Donald John TrumpObama calls on Senate not to fill Ginsburg's vacancy until after election Planned Parenthood: 'The fate of our rights' depends on Ginsburg replacement Progressive group to spend M in ad campaign on Supreme Court vacancy MORE moved to recognize Jerusalem as Israel's capital.

Haley then told U.N. Secretary-General António Guterres that the $125 million in funding to UNRWA had been put on hold, according to a U.N. official.

The AP reported on Sunday that the plan to withhold only $65 million, instead of the entire installment, was proposed by Secretary of State Rex Tillerson Rex Wayne TillersonGary Cohn: 'I haven't made up my mind' on vote for president in November Kushner says 'Alice in Wonderland' describes Trump presidency: Woodward book Conspicuous by their absence from the Republican Convention MORE and Defense Secretary James Mattis James Norman MattisBiden courts veterans amid fallout from Trump military controversies Trump says he wanted to take out Syria's Assad but Mattis opposed it Gary Cohn: 'I haven't made up my mind' on vote for president in November MORE as a compromise.

The U.S. is UNRWA's largest single donor, and the agency relies heavily on that funding to carry out its work. In 2016, the U.S. donated $355 million to the agency.

A State Department spokesperson said Tuesday that without the $60 million tranche, the refugee agency was at risk of shuttering.

"Without the funds we are providing today, UNRWA operations were at risk of running out of funds and closing down," the spokesperson said.

UNRWA has faced criticism from some Israeli officials, who have accused it of being biased against Israel and backing Palestinian militants. But the Trump administration's move to withhold funding could put more pressure on countries such as Jordan and Lebanon, which have large populations of Palestinian refugees.

UNRWA was established in 1948 to aid Palestinian refugees displaced by the Arab-Israeli conflict. It currently provides assistance to some 5 million Palestinian refugees.

The Palestinians have rejected the freeze as blackmail, and have insisted that they will not accept U.S. efforts to broker a peace deal in the region, arguing that the Jerusalem decision essentially disqualified Washington from doing so.

Jerusalem is revered by Muslims, Christians and Jews, and Israelis consider the city their capital. But Palestinians have also long aspired to establish east Jerusalem as the capital of a future Palestinian state.

Updated: 4:04 p.m.