The United States is set to call for a drastic reduction in the number of Palestinians recognised as refugees and scrap all funding for the United Nations agency established after the Arab-Israeli war.

The Trump administration is preparing to announce “within the next several weeks” that it will make no further payments to the UN Relief and Works Agency (UNRWA) because of the way it operates, the Washington Post reported.

The newspaper quoted unnamed officials as saying that UNRWA would need to change its rules, including how it classifies refugees, in order to win back American funding.

More than 5 million Palestinians are recognised as refugees, including the descendants of those who fled the 1948 war that led to Israel’s creation.

The White House wants to sharply reduce that figure to the fewer than 500,000 people who are still alive from when UNRWA was created.

Nikki Haley, the US ambassador to the United Nations, said at an event on Tuesday that there were issues with UNRWA’s model.

“You’re looking at the fact that, yes, there’s an endless number of refugees that continue to get assistance, but more importantly, the Palestinians continue to bash America,” she told the Foundation for Defense of Democracies think-tank.

Washington is the UN agency’s largest donor, providing approximately a third of the UN agency’s $1.1 billion (£850 million) budget. The UK is the third largest contributor.

But over the past year the US has been scaling back its donations, demanding reforms before more funds are released. A scheduled American payment of $130 million was cut by half in January.

According to the Post, that reduced donation would now be the US’s last payment to UNRWA.

Amid fears of a funding crisis for the agency, Britain’s Department for International Development announced in June that it would be releasing £38.5 million in funding to UNRWA earlier than originally planned “to ensure vital frontline services remain uninterrupted”.