The United States, a major ally of Israel, has cut more than $200m in economic aid to Palestinians, in a move that comes months after also drastically cutting its contribution to the UN agency for Palestinian refugees (UNRWA).

A senior US official said on Friday that President Donald Trump had ordered the State Department to “redirect” the funding for programmes in the occupied West Bank and the besieged Gaza Strip to unspecified “high-priority projects elsewhere”.

The official added that the decision took into account “the challenges the international community faces in providing assistance in Gaza, where Hamas control endangers the lives of Gaza’s citizens and degrades an already dire humanitarian and economic situation”.

The Palestine Liberation Organization (PLO) quickly denounced the US move, calling it “the use of cheap blackmail as a political tool. The Palestinian people and leadership will not be intimidated and will not succumb to coercion.”

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“The rights of the Palestinian people are not for sale,” PLO Executive Committee member Hanan Ashrawi said in a statement.

“There is no glory in constantly bullying and punishing a people under occupation. The US administration has already demonstrated meanness of spirit in its collusion with the Israeli occupation and its theft of land and resources; now it is exercising economic meanness by punishing the Palestinian victims of this occupation.”

The decision to cut Palestinian funding comes amid a severe humanitarian crisis in the Gaza Strip, where more than 160 Palestinians protesting for their right to return to the areas from which they were forcibly expelled from in 1948 have been killed by Israeli gunfire since March 30 during weeks-long demonstrations near the fence with Israel.

Officials in the Gaza Strip, which has been administered by Hamas since 2007, have previously blasted the US for its support to Israel, saying that Washington has long lost its regional credibility.

The US had planned to give the Palestinians $251m for good governance, health, education and funding for civil society in the current 2018 budget year that ends on September 30.

Washington gives Israel annual military aid of $3.1bn. Next year, that figure will increase to $3.8bn under a 10-year deal agreed by Barack Obama shortly before he stepped down as US president.

‘Logic of bullying’

In a controversial and sharply criticised move meanwhile in January, the US government announced that it was withholding $65m of a planned $125m funding instalment to the UNRWA, which provides services to Palestinians in the West Bank, Gaza, Jordan and Lebanon.

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Ali Abunimah, cofounder of the Electronic Intifada publication, said Trump’s decision on Friday might impact health and food assistance programmes but will not be “as severe as the cuts the US has already implemented for UNRWA, which have really inflicted great suffering on some of the most vulnerable Palestinians”.

Speaking to Al Jazeera from Chicago, he said the political message of the cuts “is to tell the Palestinians that the American approach now is of putting essentially a gun to their heads – that they must go along with whatever the Americans and of course Israel dictates or the US will cut their funds.

“It’s hard to see how the US thinks this will help them get their way,” said Abunimah, adding that Washington’s policy was driven by “the logic of bullying and bludgeoning Palestinians”.

Relations between the US administration and the Palestinian Authority took a nosedive after Trump announced in December the US decision to recognise Jerusalem as Israel’s capital.

The Palestinian leadership has since suspended contacts with the administration and consider that it can no longer play a mediation role in the Middle East peace process.

Friday’s decision comes amid a vacuum in Middle East peace efforts as the US administration presses on with work on a peace plan that has been under discussion for months.

Trump has tasked his son-in-law Jared Kushner and lawyer Jason Greenblatt to draft the peace proposals.