Tel Aviv, Israel - Israel faced a new wave of condemnation after its far-right finance minister announced a decision to effectively loot $35 million in Palestinian tax revenues, which will be redistributed to families of "victims of terrorism."

The US on Thursday called extremist Minister Bezalel Smotrich's decision "wrongheaded" and "not appropriate."

"We have made quite clear to the Government of Israel that these funds belong to the Palestinian people," State Department spokesperson Matthew Miller told journalists.

"They should be transferred to the Palestinian Authority immediately. They should not have been held. They should not be delayed," Miller said.

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Smotrich announced the illegal move on social media earlier in the day, saying: "The Palestinian Authority encourages and favors terrorism by paying the families of terrorists, prisoners, and released prisoners."

"In accordance with the judgments that awarded compensation to the victims of terrorism, we offset the same amounts from the PA's funds and transfer the awarded money to the families of the victims of terrorism," Smotrich added.

As part of the Oslo peace agreements set up in the 1990s, Israel collects money – for a substantial fee – on behalf of the Palestinian Authority (PA), which exercises limited autonomy in parts of the occupied West Bank.

But Israel has blocked transfers since the aftermath of the October 7 Hamas-led attacks and has ramped up repression in the West Bank, where Fatah, which has been hostile to Hamas, holds power.

The PA, deeply unpopular among its own people for its collaboration with Israeli occupation forces, is already struggling financially and on the verge of collapse.