Palestinian leaders have condemned a decision by Donald Trump to shutter their diplomatic mission to Washington as part of a “cruel and spiteful” campaign they say represents collective punishment against Palestinians.

The move follows a year of US action that includes cutting hundreds of millions of dollars in humanitarian aid to Palestinians and recognising Jerusalem, a city that is territorially contested, as Israel’s capital.

Senior Palestinian politician Hanan Ashrawi said the US government was “extremely cruel and spiteful to persist in deliberately bashing the Palestinian people by denying them of their rights, giving away their lands and rightful capital of Jerusalem”.

“This form of crude and vicious blackmail … once again seeks to punish the Palestinian people as a whole who are already victims of the ruthless Israeli military occupation,” she added.

Trump has said his decisions – which have ended half a century of bipartisan US policy towards the conflict – had been to pressure the Palestinians to make a peace deal. However, no US peace plans have yet to be put forward even as Trump has promised an “ultimate deal”, a proposal the administration says is being led by Jared Kushner, Trump’s son-in-law and a senior aide.

Although the US does not recognise Palestinian statehood, the Palestine Liberation Organization (PLO), which formally represents Palestinians, has maintained a “general delegation” office in Washington. The mission opened in 1994 and, in 2011 under the Obama administration, staff were allowed to fly their flag over the office.

“It is ironic that the US is punishing the PLO, the national representative of the Palestinian people and the highest political body that made the commitment to reaching a political and legal settlement of the Palestinian question and that has engaged in negotiations with successive US administrations for decades,” said Ashrawi, a PLO executive committee member.

In November last year, then US secretary of state, Rex Tillerson, cited a provision in a US law that meant the PLO mission must close if the Palestinians try to get the international criminal court (ICC) to prosecute Israelis for crimes against Palestinians. However, the law allows the US president to decide either way.

The US state department said in a statement on Monday that the mission should close as “the PLO has not taken steps to advance the start of direct and meaningful negotiations with Israel”.

It added: “This decision is also consistent with administration and congressional concerns with Palestinian attempts to prompt an investigation of Israel by the international criminal court.”

Palestinian flags fly at the office in Washington. Photograph: Michael Reynolds/EPA

Following the US Jerusalem embassy opening in May, and the shooting by Israeli soldiers of hundreds of Palestinian protesters, the Palestinian president, Mahmoud Abbas, recalled his envoy to the US and stopped communication.

His foreign minister later asked the ICC chief prosecutor, Fatou Bensouda, to open an investigation into alleged Israeli war crimes, crimes against humanity, and apartheid. Israel, like the US, is not a signatory to the ICC and said the body lacked jurisdiction.

Trump’s national security adviser, John Bolton, is expected to threaten the ICC – which is also investigating alleged US war crimes in Afghanistan – with sanctions on Monday, in part due to potential investigations into Israel’s conduct.

The Palestinian negotiator Saeb Erekat said Palestinians would “continue to call upon the international criminal court to open its immediate investigation into Israeli crimes”.

He said a US official had earlier notified the Palestinian leadership that its diplomatic mission would be closed, which he said was “yet another affirmation of the Trump administration’s policy to collectively punish the Palestinian people, including by cutting financial support for humanitarian services including health and education”.

Erekat added: “We reiterate that the rights of the Palestinian people are not for sale, that we will not succumb to US threats and bullying and that we will continue our legitimate struggle for freedom, justice, and independence, including by all political and legal means possible.”