The United States is ending all funding for the UN's Palestinian refugee agency, the US State Department says.
It described the organisation, the United Nations Relief and Works Agency (Unrwa), as "irredeemably flawed".
The US administration has "carefully reviewed" the issue and "will not make additional contributions to Unrwa," spokeswoman Heather Nauert said.
A spokesman for Palestinian President Mahmoud Abbas later said the move was an "assault" against his people.
"Such a punishment will not succeed to change the fact that the United States no longer has a role in the region and that it is not a part of the solution," Nabil Abu Rudeina told Reuters news agency.
He added that the decision was "a defiance of UN resolutions".
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A spokesman for Unrwa, Chris Gunness, later defended the agency in a series of tweets.
"We reject in the strongest possible terms the criticism that Unrwa's schools, health centres, and emergency assistance programs are 'irredeemably flawed'," he wrote.
The latest move comes after the US announced back in January that it would withhold more than half of a tranche of funding for the agency.
What is Unrwa?
The agency currently supports more than five million people across the Middle East, including providing health care, education and social services.
The US has been the largest single donor to Unrwa, providing $368m (£284m) in 2016 and funding almost 30% of its operations in the region.
The Trump administration had pledged $60m to Unrwa in January, but withheld another $65m pending a review. That remaining payment of $65m is now expected to be cancelled.
Earlier on Friday, German Foreign Minister Heiko Maas said his country would increase its contributions to the agency because its funding crisis was fuelling uncertainty.
"The loss of this organisation could unleash an uncontrollable chain reaction," Mr Maas said.
Palestinian territories profile
In January, Unrwa launched a global appeal to fill the gap in its budget.
Some in Israel also raised concerns at the time that weakening Unrwa could cause regional instability and create more extremism in the region.
What is the US stance?
In January, US President Donald Trump indicated a change in approach when he tweeted that the US received "no appreciation or respect" for the large sums of aid it provided to the region.
That same month, Mr Trump also threatened to cut aid to the Palestinians over what he called their unwillingness to negotiate with Israel.
Ms Nauert told reporters at the time that the Trump administration had committed the $60m as a voluntary contribution for 2018 so that Unrwa did not run out of funds, and schools and health care facilities would not have to close.
She added that the US would "like to see some revisions made in how Unrwa operates", to ensure that the money was "best spent" so that people got the services they needed.