ISRAEL says it will withhold more than $US100 million ($A96.31 million) in taxes and other funds the Jewish state collects on behalf of Palestinians to punish them for their successful bid to win UN statehood.
Israel's Cabinet on Sunday also passed a resolution saying it would not negotiate on the basis of the UN General Assembly's recognition of a state of Palestine in the West Bank, east Jerusalem and Gaza Strip.
Finance Minister Yuval Steinitz said the government would use the money it was to transfer to the Palestinians to pay down their debt to the Israel Electric Corporation and other Israeli bodies.
This was the second act of reprisal by Israel.
On Friday, Israel announced it would press ahead with plans to build thousands of settler homes.
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