Legislation will deduct money the Palestinians allocate to prisoners and others killed by Israeli forces from taxes.

Israel’s parliament has passed a law that withholds hundreds of millions of dollars in funds from the Palestinians over welfare payments given to prisoners and their families.

The Knesset, Israel’s parliament, approved on Monday the law with 87 of the 120 legislators voting in favour and 15 opposing.

The new legislation will deduct the money that the Palestinians allocate to prisoners and others killed by Israeli forces from taxes collected by Israel on behalf of the Palestinian Authority.

Legislator Avi Dichter, a co-sponsor of the law, said the families of Palestinian prisoners had easy access to these funds.

Arab legislators railed against the bill ahead of the vote.

Jamal Zahalka, of the Joint List of Arab parties, said the bill was “despicable”.

“You are stealing from the Palestinian people,” Zahalka shouted.

The Israeli move deepened a budget crunch already hit hard by US cuts in aid.

Israel has long pushed for the Palestinians to halt the stipends – which benefit roughly 35,000 families of Palestinians killed and wounded in the conflict with Israel – saying the practice encourages violence.

Among the beneficiaries are families of Palestinian prisoners and others who were killed by Israeli forces.

The stipends total approximately $330m, roughly seven percent of the Palestinian Authority’s $5bn budget in 2018.

Palestinians say the tax revenues, collected by Israel for them under past peace agreements, is their money, and that the Palestinian Authority has a responsibility to all of its citizens like any other government.

For Palestinians, the families are widely seen as victims of a half-century Israeli occupation.

Senior Palestinian official Hanan Ashrawi, accused Israel of theft and piracy.

“This is nothing short of highway robbery, this is real piracy, they are stealing Palestinian funds, it’s not theirs to decide what to do with it, if we were free we wouldn’t need Israel to collect customs.” she said.

The Israeli law passed the same day that Australia said it ended direct aid to the Palestinian Authority, claiming Australian donations could increase its capacity to pay Palestinians convicted of politically motivated violence.

The cash-strapped Palestinian Authority, which relies heavily on the Israeli tax funds and international aid, has suffered from chronic budget problems.