Ayyash, who was Hamas' chief bomb maker and was nicknamed "the engineer", was assassinated by Israel in January 1996.
Sources in the Palestinian Authority denied that such a building existed and noted that only recently the PA avoided naming a Ramallah square after a female terrorist who carried out a deadly terror attack on an Israeli bus in 1978.
"This is shocking incitement to terrorism by the Palestinian Authority," Benjamin Netanyahu's office said in response to the decision, which was reported by Channel 10.
"Next to a Palestinian Authority building in Ramallah, a street is being named after arch-terrorist Yahya Ayash, who murdered hundreds of innocent Israeli men, women and children. The world must strongly condemn this wild incitement by the Palestinians for terror and against peace."
Ayyash, born in 1966, was the most wanted terror suspect in the territories before being assassinated 14 years ago. In 1992, while studying electrical engineering at the University of Birzeit, he joined Hamas' military wing, the Izz al-Din al-Qassam Brigades. That same year he prepared a car bomb for the first time. It was meant to explode in the Ramat Gan area but was defused by sappers.
In January 1995, several months after a deadly terror attack on Tel Aviv's Dizengoff Street, he escaped to the Gaza Strip for fear of being killed. A year later, he was assassinated as his bomb-laden cell phone exploded.