Decision ends US consulate's 175-year history and hands over responsibilities for US ties with Palestinians to its Israel ambassador, David Friedman – a supporter of Israeli settlements.
The United States downgraded its diplomatic mission to the Palestinians on Monday, the latest in a series of steps by President Donald Trump's White House Palestinian leaders say is aimed at wiping out their cause.
The move, following a decision announced in October, closes the US Jerusalem consulate general that had acted independently and served as a de-facto embassy to the Palestinians since the Oslo accords of the 1990s.
It will be merged with the US embassy to Israel, where a new Palestinian affairs unit will operate.
Move to improve 'efficiency'
US Secretary of State Mike Pompeo says the move will not constitute a change in policy and is intended to improve "efficiency and effectiveness."
The State Department said on Monday that "the administration remains fully committed to efforts to achieve a lasting and comprehensive peace that offers a brighter future to Israel and the Palestinians."
But the change means Washington's relations with the Palestinians will now fall under the authority of US ambassador to Israel, David Friedman, who has been a supporter of Israeli settlement building in the occupied West Bank.
Palestinians view him – along with Trump's administration – as blatantly biased in favour of Israel.
TRT World's Mustafa Fatih Yavuz reports from Jerusalem.
'The last nail in the coffin'
Palestinian leaders froze contact with the White House after Trump's 2017 decision recognising occupied Jerusalem as Israel's capital and castigated the consulate closure.
Saeb Erekat, Palestine Liberation Organisation secretary-general, called the closure "the last nail in the coffin of the US administration's role in peacemaking."
Senior Palestinian official Hanan Ashrawi said, "The Trump administration is intent on leaving no room for doubt about its hostility towards the Palestinian people and their inalienable rights as well as its abject disregard for international law and its obligations under the law."
Israeli officials had not commented on the move on Monday.
The State Department has not confirmed reports that the consul general's residence in occupied Jerusalem will eventually become the home for the US ambassador as part of the embassy's move to the disputed city, which occurred last May.
Located near Jerusalem's Old City, it has been the home of the consul general since 1912, while the US permanent diplomatic presence in the city was established in 1857.
Trump, who is expected to release his long-awaited peace plan in the coming months, has also cut more than $500 million in Palestinian aid in a bid to force Palestinian leaders to negotiate.
Palestinian leaders call it an attempt to blackmail them into accepting a plan that they believe will destroy their hopes for independent statehood.
Israel occupied mainly Palestinian east Jerusalem in the 1967 Six-Day War and later annexed it in a move never recognised by the international community.
It sees the entire city as its capital, while the Palestinians view the eastern sector – where key holy sites for Christians, Muslims and Jews are located – as the capital of their future state.
While Palestinians point to Israeli policies such as settlement building and its continuing occupation as gradually destroying the two-state solution, Israel argues it has no partner for peace and points to Palestinian violence.
Early Monday, Israeli forces said they shot and killed two Palestinians who allegedly carried out a car-ramming attack in the occupied West Bank, injuring a soldier and a policeman.