The US Congress voted in March to sharply reduce American aid payments to the PA unless it stops so-called “martyr payments”, which can be worth up to £2,650 a month.
“I am confident that previous Australian funding to the PA through the World Bank has been used as intended,” Ms Bishop said in a statement.
“However, I am concerned that in providing funds for this aspect of the PA’s operations there is an opportunity for it to use its own budget to activities that Australia would never support.
“Any assistance provided by the Palestine Liberation Organisation to those convicted of politically motivated violence is an affront to Australian values, and undermines the prospect of meaningful peace between Israel and the Palestinians.”
Ms Bishop said her country’s AU$10 million (£5.6 million) allocation would be diverted to a humanitarian fund administered by the United Nations, which provides Palestinians with basic services including health care, food, water, improved sanitation and shelter.
Australia has been an annual donor to the World Bank's Palestinian fund since it was established in 2008. Britain has not donated since 2015.
Unlike the UN fund, donations to the World Bank programme were paid directly into the Palestinian Authority’s bank accounts.
