The decision comes two weeks after President Trump questioned the value of the funding, and it is aimed at encouraging reform at the agency.
The agency is now confronted with a massive unpaid bill at a time when it is facing huge cuts from the Trump administration for its education and health care programs and uncertainty over further US giving.
Ms. Anderson, who is from Derry, described the decision taken by the Trump administration as "deplorable" and predicted it would have a "devastating impact" on people living in Palestine. UNRWA delivers vital humanitarian and development assistance, effecting significant accomplishments for millions of refugees within its five fields of work (the West Bank, Gaza Strip, Jordan, Lebanon and Syria).
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The Palestinian aid issue has divided the Trump administration's top national security team, with Jared Kushner - the president's son-in-law and top Middle East advisor - and Haley favoring a total cutoff of humanitarian assistance to Palestinian refugees until the Palestinian Authority agrees to participate in USA -brokered peace talks with Israel.
President Trump reacted on Twitter, noting January 2 "we pay the Palestinians hundreds of millions of dollars a year and get no appreciation or respect". The administration also made clear that future donations from the US would be contingent on major reforms that will be implemented by the UNRWA.
But when asked if halving the budget to Palestinian refugees was meant as punitive measure related to the criticisms raised by Israeli officials, State Department Spokesperson Heather Nauert said the decision was fiscal, not political.
"They don't even want to negotiate a long overdue peace treaty with Israel", he protested, adding: "Why should we make any of these massive future payments to them?"
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The U.S. has historically been the UNRWA's largest single donor, supplying almost 30 percent of its budget.
That came after the Palestinian Authority said President Trump's plan to move the US embassy in Israel from Tel Aviv to Jerusalem disqualifies America as an unbiased mediator for Mideast peace.
Israel's United Nations envoy Danny Danon said the agency misuses aid and "supports anti-Israel propaganda, perpetuates the plight of Palestinian refugees and encourages hate". Administration officials say other countries should contribute more. Israel and the United States accuse UNRWA of perpetuating the Palestinian refugee problem instead of resolving it.
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UNRWA commissioner-general Pierre Krähenbühl said in a statement that the reduced U.S. contribution "threatens one of the most successful and innovative human development endeavors in the Middle East".