Extreme-right Israeli Finance Minister Bezalel Smotrich is reportedly "reconsidering" how to use money intended for Palestinian municipalities inside Israel, placing the funds on hold.
The 200 million shekels ($54 million), which have not been sent so far, had been agreed by the country's former government which included Palestinian party Raam and centrist and right-wing adversaries of current Prime Minister Benjamin Netanyahu.
The "Netanyahu-Smotrich budget is deepening discrimination and widening the gaps in Israel and abandoning the Arab community to criminal organisations", Raam chief Mansour Abbas said on Sunday, urging the Netanyahu to step in.
Smotrich, who heads the Religious Zionism party, was "reconsidering" sending the money as he mulls "priorities" and the "supervision mechanisms" in use, Israeli public broadcaster Kan has reported.
He said the present government was "not beholden" to a commitment given to Abbas by ex-interior minister Ayelet Shaked.
"These funds are frozen until there is an inspection and oversight mechanisms in place," Smotrich's office told Israeli newspaper The Jerusalem Post.
The money was intended to improve the economy and infrastructure in Palestinian communities in Israel and combat crime.
Current Interior Minister Moshe Arbel has urged Smotrich to "release" the funds, saying there could otherwise be "significant damage to the local authorities' budgetary balance".
Smotrich, who also has powers related to Israel's illegal settlements in the occupied West Bank, is a key extreme-right figure in Netanyahu's government alongside National Security Minister Itamar Ben Gvir, and has made violently racist statements against Palestinians in the past.