Mr Trump's latest comments appear to contradict his previous statement that the USA recognising Jerusalem as the Israeli capital would not impact the final status of the city in peace negotiations.
Only 6 percent of Palestinian citizens thought similarly.
The United Nations General Assembly overwhelmingly condemned any effort to recognize Jerusalem as Israel's capital, and the Palestinian leadership said it would not meet with Vice President Mike Pence, who had planned a trip to the region.
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On Twitter on Tuesday, Trump said "We pay the Palestinians HUNDRED OF MILLIONS OF DOLLARS a year and get no appreciation or respect.
Now he dares to blame the Palestinians for the consequences of his own irresponsible actions!" she said in a statement. "But with the Palestinians no longer willing to talk peace, why should we make any of these massive future payments to them?"
Some Israeli officials welcomed Trump's aid cut plan, saying it put due pressure on the Palestinians.
USA ambassador to the United Nations Nikki Haley speaks to reporters at United Nations headquarters, January 2, 2018 in New York City.
Israel passed a new law which will make plans for peace in the Middle East much more hard, just before US President Donald Trump attacked the Palestinians for lagging peace negotiations.
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It was not immediately clear whether Trump was threatening all of the budget, worth $319 million in 2016, according to U.S. government figures. It is also the largest overall supplier of financial support for the Palestinians.
Efforts to harness improved Arab-Israel relations to push a peace deal have been at least temporarily derailed by Trump's Jerusalem recognition, breaking with decades of United States policy.
On Sunday, the PA said it was recalling its envoy to the United States for consultations, in protest of U.S. actions.
He has heaped pressure on Palestinians to do a deal, threatening to close the de facto "embassy" in Washington in addition to recognising Israel's contested claim on Jerusalem and now threatening aid.
Trump has said his decision merely recognized the reality that Jerusalem already serves as Israel's capital and wasn't meant to prejudge the final borders of the city.
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