Palestinian President, Mahmoud Abbas, said the Palestinian National Authority (PNA) will no longer accept the remittance of taxes collected on its behalf by Israel.
Abbas made the announcement following Israel's decision to freeze remittances allocated by the PNA to support Palestinian prisoners and their families.
"We refuse the taxes, we don't want them," Abbas said, cited by WAFA agency.
"Frankly, if we remain with just 20 or 30 million shekels, we'll give them to the families of the martyrs," he said.
Based on the Oslo Peace Accords and subsequent agreements, Israel collects Palestinian taxes on the PNA's behalf in both the West Bank and Gaza, and then sends them to the PNA.
Media sources said the taxes amount each month to 222 million dollars (about 198 million euros), including deductions for electricity, water, medical and other services provided by Israel.
Last Sunday, the Israeli government decided to apply a law that had been approved by the Knesset last summer but never enacted, which freezes and holds sums from the taxes allocated by the PNA to support Palestinian prisoners in Israeli prisons and the families of the "martyrs" - those who were killed during attacks on Israelis.
Based on the Palestinian budget, Israel calculated 138 million dollars for 2018 (123 million euros), and froze the amount.
The Israeli government said the reason for its decision is that it considers the funds an incentive to those responsible for terrorist attacks.
Another factor that pushed towards enacting the law was the recent brutal murder of an Israeli girl in Jerusalem by a Palestinian from Hebron.
The Palestinians immediately criticised the Netanyahu government's decision harshly, calling it "an unacceptable act of piracy of our money". The final move was made on Wednesday by Abbas in refusing the entire amount of taxes collected by Israel.
The choice will likely weigh heavily on the Palestinian state budget, which has already been decimated by the reduction of US aid.