Yuval Steinitz, Israel's finance minister, said he had ordered the postponement of a regularly scheduled meeting with the PA to discuss the cash transfers in the wake of a unity deal between Fatah and the Islamist Hamas movement.
"The Palestinian president Abu Mazen (Mahmud Abbas) and (prime minister) Salam Fayyad must prove that these funds will not go into a communal fund in the government they want to form with Hamas," Steinitz told Israeli military radio.
"There is no question for us that a communal fund would finance the terrorist activities of Hamas, and we want it established that there will be two separate funds," Steinitz said.
Sunday's postponed meeting was supposed to have culminated in the transfer of some 300 million shekels ($88.7 million) to the PA, according to Israeli daily Yediot Aharonot.
Palestinian economy minister Hassan Abu Lebda slammed Steinitz's decision, and warned that Israel would be in violation of international agreements if it failed to transfer the funds.
"These funds are the right of the Palestinian people," he told AFP.
"Any delay in the transfer of these funds is a violation of and infringement on Palestinian rights and a serious violation of the current arrangements, and Israel bears full responsibility for the consequences of this threat."
Abbas's Fatah movement, which dominates the PA, agreed a reconciliation deal with bitter rival Hamas earlier this week.
The deal envisages an interim government of independents who would govern for a year until presidential and legislative elections can be held.
Israel collects taxes for the Palestinians at border crossings and ports and transfers the funds to the PA under an economic deal agreed alongside the Oslo Accords.
The revenues amount to between 3.5 and 5.0 billion shekels ($1.04 billion to $1.48 billion) each year and form a significant part of the PA's annual budget.