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".
A spokesman for Unrwa, Chris Gunness, 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.
3. These very programs have a proven track record in creating one of the most successful human development processes and results in the Middle East. The international state community, our donors and host countries have consistently praised UNRWA for its achievements and standards— Chris Gunness (@ChrisGunness) August 31, 2018
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?
Unrwa was originally set up to take care of hundreds of thousands of Palestinians displaced by the 1948 Arab-Israeli war.
The agency says it currently supports more than five million Palestinians in Gaza, the West Bank, Jordan, Syria and Lebanon, including providing health care, education and social services.
The US has been the largest single donor to Unrwa, providing $364m (£283m) in 2017 and funding almost 30% of its operations in the region.
The Trump administration had pledged $60m to Unrwa in January, but withheld another $65m.
The remaining payment of $65m is now expected to be cancelled.
Why is the US critical of Unrwa?
The US disagrees with Unrwa, and Palestinian officials, on a number of issues.
US President Donald Trump has previously complained that the US received "no appreciation or respect" for the large sums of aid it provided to the region.
Earlier this year, he threatened to cut aid to the Palestinians over what he called their unwillingness to negotiate with Israel.
The US and Israel also disagree with Unrwa on which Palestinians are refugees with a right to return to the homes they fled following the 1948 war.
Nikki Haley, the US ambassador to the UN, said earlier this week that Unrwa exaggerated the number of Palestinian refugees, and needed to reform.
"You're looking at the fact that, yes, there's an endless number of refugees that continue to get assistance, but more importantly, the Palestinians continue to bash America," she said.
The state department says the US is contributing a "very disproportionate share of the burden of Unrwa's costs".
It complains of a business model and fiscal practices, linked to an "exponentially expanding community of entitled beneficiaries", which is "unsustainable and has been in crisis mode for many years".
What does the Palestinian side say?
On Friday, the Palestinian representative in Washington, Hossam Zomlot, accused the US of "endorsing the most extreme Israeli narrative on all issues including the rights of more than five million Palestinian refugees".
The US "is damaging not only an already volatile situation but the prospects for future peace", he told AFP.
Palestinian officials have already accused the Trump administration of worsening tensions due to its pro-Israel stance.
In December, Mr Trump controversially recognised Jerusalem as Israel's capital, despite it being claimed by both sides.
His move overturned decades of US neutrality on the issue, attracted international criticism, and led to the Palestinian Authority cutting off dialogue in Washington.
In May, the US also opened an embassy in Jerusalem, a move described by Palestinian officials as a "blatant provocation".
What's the Israeli view?
Israeli Prime Minister Benjamin Netanyahu has previously called for Unrwa's funding to be cut gradually and its responsibilities transferred to the UN's global refugee agency, the UNHCR, arguing that it "perpetuates the Palestinian problem".
However, he said that "every step taken also contains some risk".
Some Israelis have raised concerns that weakening Unrwa could cause regional instability and create more extremism in the region.
How has the international community reacted?
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.
Meanwhile, the UN's secretary general, Antonio Guterres, has said he has "full confidence" in Unrwa, and called on other countries "to help fill the remaining financial gap".