JERUSALEM - Israeli Prime Minister Benjamin Netanyahu announced on Sunday that the Israeli government rejects the upgrade of the Palestinian National Authority (PNA) to a non- member observer state in the United Nations.

"The PNA's one-sided step at the UN constitutes a gross violation of agreements that have been signed with Israel. Accordingly, the government of Israel rejects the UN General Assembly decision," Netanyahu said on Sunday during the weekly cabinet meeting.

Netanyahu also took notice of the steps the Israeli government is expected to take in response to the decision.

"The response to the attack on Zionism and the State of Israel must reinforce and underscore the implementation of the settlement plan in all areas to which the government decides," he added.

"Today we are building and we will continue to build in Jerusalem and in all areas that are on the map of the strategic interests of the State of Israel," he added.

On Friday, the Israeli cabinet decided to increase the construction in east Jerusalem and the West Bank settlements with 3,000 new housing units, in response to the bid.

On Sunday, prior to the cabinet meeting, Finance Minister Yuval Steinitz said Israel would suspend monthly tax revenues it collects for the PNA in punishment of the UN bid, a sum of about NIS 460 million (116 million U.S. dollars).

"I am not going to transfer the money this month," Steinitz was quoted as saying by the Walla news website. "I will use them to offset the PNA's debt to the Electric Corporation," he added.

In a vote of 138 to nine and 41 abstentions, the UN General Assembly authorized the PNA's bid to upgrade its status to that of a non-member observer state.

The Israel cabinet's response of announcing further construction in the West Bank and east Jerusalem was sharply criticized by the U.S. and other members of the international community.