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The Palestinian Authority has demanded the funding stop at the end of January for fear it could expose the PA to costly lawsuits under the US Anti-Terrorism Clarification Act (ATCA), which comes into force on 1 February.

"The money will be cut off," senior Palestinian official Saeb Erekat told AFP in the West Bank city of Ramallah.

"We don't want to receive any money if this will take us to court."

The ATCA legislation passed by Congress last year provides for any government that receives funding to be subject to US counterterrorism laws.

The PA faces potential lawsuits from families of American victims of past Palestinian attacks.

The aid of around $35 million a year was in support of Palestinian security forces in the occupied West Bank, which cooperate closely with their Israeli counterparts against Hamas and other radical groups.

Media reports had said Israeli officials expressed concern to the US about the impact of the security cut and encouraged them to find a workaround.

Erekat, however, denied the PA was seeking a way by which the funding could continue without exposing the government to the ATCA.

"We are not seeking anything. The Americans have made a decision," he said. "But we are going to continue being part of fighting terror in the region."

He pointed out that hundreds of millions of dollars had already been cut by the Americans in aid to the Palestinian people in the past year.

Israeli and US officials regularly accuse the PA of encouraging violence by providing funds to the families of prisoners held by Israel or of militants while carrying out attacks against Israelis.

The PA says the payments are a form of welfare to the families who have lost their main breadwinner and denies it seeks to encourage violence.

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