Israeli Finance Minister Bezalel Smotrich said the money was prompting crime among Palestinian communities, triggering outrage.

Smotrich, a member of Prime Minister Benjamin Netanyahu’s far-right government, said this month that some of the budget funds meant for Palestinian-majority local councils were a political payoff by the previous government that could end up in the hands of “criminals and terrorists”.

Smotrich, who lives in an illegal settlement in the occupied West Bank, has made several anti-Palestinian comments in the past, including saying that the Palestinian people were “an invention”, and calling for a Palestinian town in the West Bank to be “wiped out”.

Palestinian-majority councils held a strike last week in protest and community leaders demonstrated outside government offices. The National Committee of Arab Local Councils in Israel also accused Smotrich of racism.

In a statement on Monday, Smotrich appeared to reverse course and said an oversight mechanism had been created to transfer funds to the communities.

“We are stopping the criminal organisations from taking over the budgets that go to the Arab authorities,” Smotrich said.

Palestinian citizens of Israel, descendants of Palestinians who remained in Israel after its formation, an event known by Palestinians as the Nakba (catastrophe), make up about a fifth of the country’s population.

While they hold citizenship and have the right to vote, they have long faced discrimination. Many Palestinian communities inside Israel are underfunded and marginalised.

Palestinian citizens of Israel say they have always been treated as inferior to Jewish citizens.

In 2018, Israel’s so-called nation-state bill was passed, defining it as the national homeland for the Jewish people while downgrading the status of Palestinians and their Arabic language.

Palestinians are often arrested for their participation in protests against issues including settler violence, and the Israeli forces’ recurring crackdowns on the Al-Aqsa Mosque compound in occupied East Jerusalem.

In 2021, hundreds took to the streets to protest Israel’s deadly assault on the besieged Gaza Strip. More than 300 people were arrested at the time, Al Jazeera reported.

Crime in the Palestinian communities is disproportionately high to their makeup of the overall demographic. Palestinians say that is a result of a lack of policing in their communities, high poverty levels, and a lack of investment from the central government.

At least 157 Palestinian citizens of Israel have been murdered since January, more than double the fatalities over the same period last year and the highest toll since 2014.