The United States has downgraded its main diplomatic mission to the Palestinians, placing it under the authority of the US embassy to Israel.
US Secretary of State Mike Pompeo said the consulate general, a separate office which handled dealings with the Palestinians, would be replaced by a new Palestinian Affairs Unit inside the controversial new US embassy in Jerusalem.
The move will make the US ambassador to Israel, David Friedman, who is reviled by Palestinians over his support for Israeli settlements in the West Bank, the main interlocutor with the Palestinian leadership.
The change, quickly condemned by the Palestinians, follows a series of setbacks for them at the hands of US President Donald Trump, who has turned US policy sharply towards Israel.
Pro-Israel advocates hailed the decision, saying it confirmed the US recognised the whole of Jerusalem as part of Israel.
"This decision is driven by our global efforts to improve the efficiency and effectiveness of our operations. It does not signal a change of US policy," Mr Pompeo said in a statement.
He said the United States "continues to take no position" on how any peace deal between the Israelis and Palestinians would take shape.
The Palestinian leadership rejected Mr Pompeo's "efficiency" explanation.
The decision has "a lot to do with pleasing an ideological US team that is willing to disband the foundations of American foreign policy, and of the international system, in order to reward Israeli violations and crimes," the Palestinians' chief negotiator Saeb Erekat said.
"The Trump administration is part of the problem, not part of the solution," he added.
International powers have for decades maintained separate and autonomous representations to Israel and the Palestinians on the basis of supporting the eventual creation of an independent Palestinian state.
They have insisted that the status of Jerusalem, which both the Israelis and Palestinians see as their capital, should be negotiated between the parties as part of any end deal.
Last December, President Trump reversed longstanding US policy and recognised Jerusalem as the capital of Israel, prompting Palestinian president Mahmoud Abbas to boycott his administration.
Since then, the Trump administration has forced the Palestinians to shutter their Washington mission and has slashed hundreds of millions of dollars in aid, in a bid to force them to the negotiating table.
Mr Trump's son-in-law Jared Kushner, alongside Mr Friedman and peace envoy Jason Greenblatt, has been working for months on a still-secret peace proposal, which Palestinians fear will be overly one-sided towards Israel.
The move nearly closes off all direct diplomatic contacts between the United States and the Palestinians, analysts said.
Ofer Zalzberg of the International Crisis Group think-tank said the US would be the only major power without a separate, independent representative office for the Palestinians.
"Other countries have gone to great lengths to avoid having the same representatives to Israel and the Palestinian Authority," he told AFP.
Robert Danin, a former senior US government official dealing with Israeli-Palestinian issues, said the move was a victory for "hard right partisans" who have sought to eliminate the Palestinian-focused consulate general "for decades."
The consulate general "is THE eyes and ears into Palestinian politics and society. Its independence from US Embassy Israel provided Washington w/solid, unvarnished reporting and analysis," he said on Twitter.
State Department spokeswoman Heather Nauert defended the move, saying the new Palestinian Affairs Unit inside the embassy would maintain contacts with Palestinians in the West Bank, Gaza Strip and Jerusalem at the same level as before the change.
"We value our relationship with the Palestinian people. We look forward to continued partnership and dialogue with them and, we hope in future, with the Palestinian leadership," she said via Twitter.