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Palestinian officials had previously announced Israel is forcing banks in the occupied West Bank to close accounts held by the families of prisoners in Israeli jails to prevent the Palestinian Authority from providing stipends to them.

Israel has long objected to the Palestinian Authority's payments to the families of prisoners and those killed in the conflict, including militants, saying it rewards "terrorism".

The Palestinians view the payments as a social safety net for those living under decades of military occupation.

The payments are made to around 11,000 individuals and families, according to Reuters.

On Friday night, Palestinian Prime Minister Mohammad Shtayyeh said banks had agreed to reopen the accounts.

"Families of prisoners can activate their bank accounts starting from Sunday," he said in a statement.

"We reject the Israeli threats to banks over the allocations of prisoners and martyrs, and we will not submit to them."

The Israeli military order, which was set to take effect on Saturday, threatened fines and jail time for anyone who facilitates the payments. Palestinian banks have subsequently begun shutting down accounts belonging to prisoners and their families.

Qadora Fares, head of the Palestinian prisoners' association, said relatives of current and former prisoners have told him they were forced to close their accounts because of a new Israeli law penalising banks for facilitating the payments.

The father of one prisoner told The Associated Press he tried to use an ATM on Thursday but the request was declined. He says the bank told him to withdraw his funds and close the account because of the new Israeli regulations. He spoke on condition of anonymity out of fear Israel would target his assets.

Protesters shattered the windows of several bank branches and set fires outside some of them late Thursday and early Friday as word of the new regulations spread.

According to Reuters, one branch of Cairo Amman Bank, was torched and another fired on by gunmen.

Reuters reported the Association of Banks in Palestine defended the account closures, saying they were meant to protect prisoners’ assets from seizure and defend the banks and their employees from Israeli retribution. The association called on the Palestinian Authority to find another solution regarding the payments.

Israel’s military said in a statement that the order expands its authority to seize assets received from committing a security offence, according to Reuters. The statement did not specify whether banks would face penalties.

Over the last two years, Israel has deducted the amount of the payments from tax revenues it collects on behalf of the Palestinian Authority. Last year, the Palestinian Authority rejected all the tax transfers in protest, but it relented months later.

Agencies contributed to this report.

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