A State Department disputed having a January 1 deadline to transfer the funds, though, telling Axios, "There are still deliberations taking place, and we have until mid-January to decide what we are going to do".
Jerusalem should ultimately be shared capital of Israeli and Palestinian states, British Foreign Minister, Boris Johnson, told his Palestinian counterpart, Riyad al-Malki on Monday, a statement from Britain's foreign office said.
In the wake of the furious Palestinian reaction to Trump's decision to recognize Jerusalem as Israel's capital and their declaration that the U.S. is no longer an "honest broker" in the peace process, the Trump administration is debating whether to reduce funding to the Palestinian Authority and to UNRWA.
Netanyahu said UNRWA was "an organisation that perpetuates the Palestinian problem".
UNRWA said Sunday it has not received any official notification from Washington about the USA government's alleged decision to freeze its funding for the United Nations agency that provides aid to Palestinian refugees.
Gunness was responding to U.S. threats to cut its support of the United Nations agency, which has been providing humanitarian assistance to Palestinian refugees since 1949. He added that the organization "must disappear" because the Palestinians' right to return to Israel was a stance meant to eliminate the State of Israel.
But Netanyahu noted that "genuine" Palestinian refugees still need assistance, and proposes that UNRWA funds from the United States should be "gradually shifted" to the UN High Commissioner for Refugees, which has "clear criteria for supporting genuine refugees, not fictitious refugees as happens today under UNRWA".
UNRWA spokesman Chris Gunness said that its mandate came from the UN General Assembly "whose members give wide and strong support to the agency's humanitarian and human development mission". The threat to cut USA funding to the Palestinian refugee agency came last week, another result of the U.N. General Assembly condemning, at the Palestinian delegation's behest, Trump's recognition last month of Jerusalem as Israel's capital.
The US is the largest donor to the relief agency, with a pledge of around $370 million as of 2016, according to UNRWA's website.
Palestinians want East Jerusalem as the capital of a state they seek to establish in the West Bank and Gaza Strip.
In a statement to The Jordan Times on Sunday, UNRWA Spokesperson Sami Mshasha said that the relief agency, "only through the media", learned that the U.S. administration has frozen its funding for the agency.
Most UNRWA assistance is distributed to Palestinians in the Gaza Strip, Jordan, Lebanon and Syria.