The United States held back $65 million that had been destined for the United Nations relief agency for Palestinians on Tuesday, two weeks after President Donald Trump threatened future payments.

State Department officials insisted the decision was not taken to pressure Palestinian leaders, but because the US wants other countries to help pay for and reform UNRWA.

But the call came after a behind-the-scenes tussle between hawks who want to cut all aid to Palestinians and officials concerned about the humanitarian and diplomatic fallout.

The State Department said $60 million of what had been a planned $125 million package would go through to keep the agency running, but the rest will be withheld for now.

"This is not aimed at punishing anyone," spokeswoman Heather Nauert told reporters.

"The United States government, and the Trump administration, believe that there should be more so-called burden-sharing to go around," she said.

"We would like other countries, in fact other countries that criticize the United States for what they believe to be our position vis-a-vis the Palestinians... to step forward."

The head of the UN Relief and Works Agency for Palestinian Refugees (UNRWA), Pierre Krahenbuhl, expressed alarm and immediately called on other UN members to contribute.

He said the $60 million would keep schools and hospitals open for now, but noted that it was dramatically lower than the $350 million Washington paid over the course of 2017.

"Funding UNRWA or any humanitarian agency is the discretion of any sovereign member state of the United Nations," he said, in a statement.

The Arab League chief yesterday charged that a US decision to freeze crucial funding for the United Nations agency for Palestinian refugees was aimed at wiping out the whole issue.

"This decision affects the education and health of Palestinians and aims to eradicate the question of refugees," Ahmed Aboul Gheit said at a conference in Cairo on the disputed city of Jerusalem.