Palestinian youths march during a military style exercise run by Hamas during a scouting summer camp next to the border between Egypt and Rafah, southern Gaza Strip, Wednesday, June 19, 2013. Adel Hana/AP

SYDNEY (Reuters) - Australia said on Friday it was suspending funding for relief group World Vision's operations in the Palestinian Territories after allegations its Gaza representative funneled millions of dollars to the Islamist militant group Hamas.

Mohammad El Halabi, World Vision's manager of operations in Gaza, was arrested by Israel on June 15 while crossing the border into the enclave, which is under the de facto rule of Hamas, a group on Israeli and U.S. terrorism blacklists.

A senior Israeli security official on Thursday said Halabi, who has run the group's Gaza operations since 2010, had been under extended surveillance and had confessed to siphoning off some $7.2 million a year to Hamas.

World Vision said it was shocked by the claims, and a Hamas spokesman said the group had no connection with Halabi.

Australia's Department of Foreign Affairs and Trade (DFAT) called the allegations "deeply troubling" and said in a statement that it was "urgently seeking more information from World Vision and the Israeli authorities."

"We are suspending the provision of further funding to World Vision for programs in the Palestinian Territories until the investigation is complete," it said.

Israel welcomed the decision and said it has passed on details of the case to a number of countries from where money is being sent to Gaza.

Israel's Foreign Ministry said it "calls on the organization and others dealing in aid to the Gaza Strip to examine themselves and their local partners."

Australia has paid World Vision approximately $4.35 million over the past three financial years for the provision of aid in the Palestinian Territories, a DFAT spokesman said.

(Editing by Michael Perry)