Palestinian authorities have rejected hundreds of millions of dollars of tax revenues unfrozen by Israel.
Palestinian Authority President, Mahmoud Abbas, said on Sunday that he returned the money because Israel deducted a third to cover unpaid Palestinian utility debts.
Israel started withholding around $130 million a month in tax and customs revenue in December.
The move came after the Palestinians announced that they were joining the International Criminal Court (ICC), a move finalized on April 1.
Under international pressure, Israel agreed last week to resume the transfers, saying it would immediately pay around $400 million, the withheld revenue minus the amount owed by the Palestinians for utilities supplied by Israel.
President Abbas said those deductions amounted to a third of the total sum that Israel owed the Palestinians.
“We are returning the money. Either they give it to us in full or we go to arbitration or to the court (ICC). We will not accept anything else,” he said in a speech.
An official at Prime Minister Benjamin Netanyahu’s office said that Israel had deducted a portion of the Palestinians’ electricity, water and health bills from tax revenue it transferred and was “willing to transfer back to the Palestinian Authority the sum that was returned whenever it wishes”.
The government made the decision to restart payments two weeks ago but warned at the time that it would make deductions from the transfer.
Israeli Prime Minister, Benjamin Netanyahu, said at the time that Israel would resume payments partly out of “humanitarian considerations”, adding that the “deteriorating situation in the Middle East” and rise of extremists required him to “act responsibly and judiciously”.