Portrait of Yasser Arafat in Palestinian refugee camp on outskirts of Beirut (MEE/Marta Vidal)

The United States has frozen $125m in funding for a UN agency that provides aid to Palestinian refugees, Axios news site reported on Friday, days after President Donald Trump threatened to withhold future aid payments to Palestinians.

The funding, a third of the annual US donation to the United Nations Relief and Works Agency (UNRWA), was supposed to be delivered by 1 January but was frozen until the US government finishes its review of aid to the Palestinian Authority, Axios reported, citing three unidentified Western diplomats.

Trump said on Tuesday he would withhold money from the Palestinians, accusing them of being “no longer willing to talk peace” with Israel.

"We pay HUNDRED OF MILLIONS OF DOLLARS a year and get no appreciation or respect. They don’t even want to negotiate a long overdue peace treaty with Israel … with the Palestinians no longer willing to talk peace, why should we make any of these massive future payments to them?” Trump said on Twitter.

Palestinians said the US could not be seen as an impartial interlocutor to the Palestinian-Israeli conflict after Trump recognised Jerusalem as Israel's capital and set a process in motion to move the embassy from Tel Aviv.

Trump's move was slammed by most of the international community and at the UN General Assembly.

The United States is the largest donor to the agency, with a pledge of nearly $370m as of 2016, according to UNRWA’s website.

More than 600,000 Palestinians were pushed out or forced to flee their homes before and during 1948 when the state of Israel was established. Millions of Palestinian refugees, 1948 survivors and their descendants, are scattered in the West Bank and Gaza Strip and across neighbouring Arab countries.

They largely depend on UNRWA aid for health care, education and other essential services.

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