It is the latest withholding of duties for the Palestinian Authority (PA), which exercises limited autonomy in parts of the Israeli-occupied West Bank since the Israeli war on Gaza began. 

Smotrich said on social media platform X that the withholding of Palestinian funds was part of a broader strategy to prevent the creation of a Palestinian state, alongside increased settlement in the West Bank.

In a statement issued late on Sunday, the finance ministry said the confiscation of funds was "part of measures to combat terrorism".

The statement quoted Smotrich alleging the PA diverted the funds to the "families of terrorists", an accusation he has made before. 

A 2004 law enshrined the PA's responsibility to guarantee "a dignified life" for current and former Palestinian prisoners in Israeli jails.

The law ensures "their economic rights and those of their relatives" are protected.

The pension are a lifeline for Palestinian families and a symbolic gesture of support against Israeli occupation.

The Israeli ministry statement said this was the fifth time it had confiscated Palestinian funds, which Israel collects on behalf of the Palestinian Authority.

The PA -- whose finances have come under increasing strain during the war on Gaza -- did not immediately respond to AFP requests for comment.

A Jerusalem-based diplomat told AFP that this is a new tactic.

"They are thinking of new ways to sanction the PA and destroy it. It's crazy, they are pushing the PA to collapse", said the diplomat.

Israeli settlements in the West Bank are illegal under international law.

* This story was edited by Ahram Online