The United States downgraded its main diplomatic mission to the Palestinians on Thursday, placing it under the authority of the US embassy to Israel.

US Secretary of State Mike Pompeo said the consulate general, a separate office which handled dealings with the Palestinians, would be replaced by a new Palestinian Affairs Unit inside the controversial new US embassy in Jerusalem.

The move will make the US ambassador to Israel, David Friedman, who is reviled by Palestinians over his support for Israeli settlements in the West Bank, the main interlocutor with the Palestinian leadership.

The change, quickly condemned by the Palestinians, follows a series of setbacks for them at the hands of President Donald Trump, who has turned US policy sharply towards Israel.

Pro-Israel advocates hailed the decision, saying it confirmed the US recognized the whole of Jerusalem as part of Israel.

" The merger does not signal a change of US policy: Pompeo

"This decision is driven by our global efforts to improve the efficiency and effectiveness of our operations. It does not signal a change of US policy," Pompeo said in a statement.

He said the United States "continues to take no position" on how any peace deal between the Israelis and Palestinians would take shape.

The Palestinian leadership rejected Pompeo's "efficiency" explanation.

The decision has "a lot to do with pleasing an ideological US team that is willing to disband the foundations of American foreign policy, and of the international system, in order to reward Israeli violations and crimes," the Palestinians' chief negotiator Saeb Erekat said.