Millions of pounds of British government money are being handed to convicted Palestinian terrorists.

The Department for International Development is expected to give up to £25.5 million this year to the Palestinian Authority, part of an aid package totalling over £70 million.

But according to an investigation by the Mail on Sunday, British money is passed on by the PA to the Palestinian Liberation Organisation. The PLO uses it to pay salaries to terrorists in Israeli jails, and to their families.

Dfid denies that the cash goes to terrorists. The payments made by the PLO are “social welfare” for prisoners’ families, it said.

But the Mail on Sunday reported that British cash was provided to the PLO until last year and that the PA boasts of paying convicted terrorists in its own official statements.

A PA official defended the payments. Amr Nasser, adviser to the minister of social affairs, is quoted as saying: “These people are heroes. We could be giving them much more money and it would not be enough."

Reported to be among the recipients of British cash are Amjad and Hakim Awad, who killed Ehud and Ruth Fogel and their three children in 2011. It is estimated that Amjad may have been paid up to £16,000.

A report due to be published next week by Palestinian Media Watch claims that Hamas terrorists have been given over £100,000, while payments have been made to the relatives of suicide bombers and to teenagers involved in the current surge of violence that has engulfed Israel.

Tzipi Hotovely, Israel’s deputy foreign minister, said: "This serves as a huge financial incentive to carry out acts of terror against Jews.

"Is it imaginable for a Western government to contemplate subsidising acts of mass murder and terror in this fashion? Yet that is effectively what is happening."

In a statement, the Dfid described the claim that government money was finding its way to terrorists as "simply incorrect".

"No UK aid is used for payments to Palestinian prisoners or their families," it said.

"Only named civil servants from a pre-approved EU list are eligible, and the vetting process ensures that our funds do not benefit terrorist groups. EU financial assistance is linked to the same vetting process.

"Our funds are also subject to independent auditing. UK support, alongside Norway, France and Japan, is provided through a multi-donor trust fund administered by the World Bank, which carries out close monitoring of Palestinian Authority (PA) expenditure.

"UK and international support for the PA is helping to maintain stability, deliver basic services and build the institutions of a future Palestinian state living in peace and security side by side with Israel. The UK does not provide any funding to the Palestine Liberation Organisation."