"We pay the Palestinians HUNDRED OF MILLIONS OF DOLLARS a year and get no appreciation or respect," Trump tweeted.
"With the Palestinians no longer willing to talk peace, why should we make any of these massive future payments to them?"
It was not immediately clear whether Trump was threatening all of the budget, worth $319 million in 2016, according to US government figures.
The US has long provided the Palestinian Authority with much-needed budgetary support and security assistance, as well as an additional $304 million for the UN’s programmes in the West Bank and Gaza.
Unless Trump follows through on his customary tough talk, the message is likely to be seen as primarily political.
Trump came to office boasting that he could achieve the "ultimate deal" that secures peace in the Middle East, something that has eluded presidents since the late 1960s.
For most the last half century the United States has been seen as indispensable -- if sometimes imperfect -- arbiter of the peace process.
Trump’s actions are likely to cast that further in doubt.
He has heaped pressure on Palestinians to do a deal, threatening to close the de facto "embassy" in Washington, recognising Israel’s contested claim on Jerusalem and now threatening aid.
Efforts to harness improved Arab-Israel relations to push a peace deal have been at least temporarily derailed by his decision to recognise Jerusalem as Israel’s capital, breaking with decades of American policy.
The decision sparked almost universal diplomatic condemnation and deadly protests in the Palestinian territories.
It also prompted Palestinian president Mahmud Abbas -- 82-years-old and facing the prospect of entering the history books as the leader who "lost Jerusalem" -- to cancel a planned meeting with Vice President Mike Pence.
Christian and Muslim leaders in Egypt took similar steps.
Pence was forced to delay his December visit to the Middle East until later this month, and aides were on Tuesday forced to reject rumours of further delays.
"As we’ve said all along, the Vice President is going to the Middle East in January," said Pence spokeswoman Alyssa Farah. "We’re finalising details and will announce specifics of the full trip in the coming days." VNS.