The department notified Congress of the decision in a brief, three-paragraph notice sent first to lawmakers and then to reporters. It said the administration will redirect the money to "high priority projects elsewhere."
The move comes as President Donald Trump and his Middle East pointmen, Jared Kushner and Jason Greenblatt, staff up their office to prepare for the rollout of a much-vaunted but as yet unclear peace plan for Israel and the Palestinians.
"At the direction of President Trump, we have undertaken a review of US assistance to the Palestinian Authority and in the West Bank and Gaza to ensure these funds are spent in accordance with US national interests and provide value to the US taxpayer," the department said. "As a result of that review, at the direction of the president, we will redirect more than $200 million ... originally planned for programs in the West Bank and Gaza."
"This decision takes into account the challenges the international community faces in providing assistance in Gaza, where Hamas control endangers the lives of Gaza's citizens and degrades an already dire humanitarian and economic situation," the notice said, without providing additional details.
The notice did not give an exact amount of the funds to be cut, but said they had been approved in 2017.
The US had planned to give the Palestinians $251 million for good governance, health, education and funding for civil society in the current 2018 budget year that ends on Sept.30. But with just over a month to go before that money must be used, reprogrammed to other areas or returned to Treasury, less than half has actually been spent. Earlier this month, the department had released about $60 million of the 2018 money for security projects that encourage cooperation between the Palestinian Authority and Israel.
Israel and Jordan, in particular, had lobbied for the security assistance to be continued.
The loss of the assistance is almost certain to further provoke the Palestinians against the Trump peace plan. The Palestinian leadership has been openly hostile to any proposal from the administration, citing what it says is a pro-Israel bias, notably after Trump recognized Jerusalem as Israel's capital in December and moved the US embassy there from Tel Aviv in May. The Palestinian Authority and its President Mahmoud Abbas broke off contact with the US after the Jerusalem announcement.
The announcement does not include some $65 million in frozen US funding for the UN Relief and Works Agency, which provides services to Palestinians in the West Bank, Gaza, Jordan and Lebanon. However, the Trump administration is extremely skeptical of UNRWA and that money is also likely to be reprogrammed, according to officials.
Friday's decision follows a similar decision last week in which the State Department announced that it was redirecting $230 million dollars in aid that had been planned for stabilization programs in liberated areas of Syria. In that case, however, the department said the loss of US funding would be more than offset by other nations, including Saudi Arabia, which announced a $150 million contribution for Syria stabilization just hours before the American announcement.