Israeli Prime Minister Benjamin Netanyahu called on Sunday for the dismantling of the UN agency that aids millions of Palestinian refugees, accusing it of anti-Israeli incitement and saying he had conveyed his message to the US ambassador to the United Nations.
Adnan Abu Hasna, a Gaza-based spokesman for the United Nations Relief and Works Agency (UNRWA), said Netanyahu was pursuing a "fantasy".
The United States, Israel's main ally, was the biggest donor to UNRWA last year, pledging $368 million.
In public remarks to his cabinet at its weekly meeting, Netanyahu said UNRWA perpetuated, rather than solved, the Palestinian refugee problem and that it stoked anti-Israeli incitement.
"It is time UNRWA be dismantled and merged with the United Nations High Commissioner for Refugees," Netanyahu said.
Referring to a meeting he held in Jerusalem on Wednesday with Nikki Haley, the US ambassador to the UN, Netanyahu said: "I told her it was time the United Nations re-examine UNRWA's existence."
UNRWA was established by the UN General Assembly in 1949 after hundreds of thousands of Palestinians fled or were expelled from their homes in the 1948 war that followed Israel's creation.
It says it currently aids five million registered Palestinian refugees in the Middle East.
Chris Gunness, UNRWA's chief spokesman, told Reuters news agency that only the General Assembly, by a majority vote, could change the agency's mandate.
"In December 2016, UNRWA's mandate was extended for three years by the General Assembly by a large majority," he added.
Netanyahu made his comments two days after UNRWA said it had discovered part of a tunnel running under two of its schools in the Gaza Strip's Maghazi refugee camp.
UNRWA said it had protested to Hamas, the group that rules the enclave and which had used a network of cross-border tunnels to launch attacks inside Israel in a 2014 war.
Hamas denied the accusations, calling them "Israeli fabrications".
"The Israeli claims regarding discovering alleged tunnels underneath the UNRWA school are classic Israeli lies aiming to dehumanize the Palestinian refugees," senior Hamas leader and spokesman Izzat al-Rishq told Al Jazeera.
"This is not the first time the Israeli government tries to spread such lies in order to destroy the work of UNRWA in helping Palestinian refugees get their education.”
Rishq said Netanyahu's call to dismantle UNRWA was "part of the Israeli plan to eliminate the Palestinian refugee problem once and for all".
UNRWA's Guinness said the agency had "robustly intervened and protested to Hamas in Gaza".
He said UNRWA would seal the tunnel, which was discovered while the schools were empty during the summer holiday.
Over the years, Hamas has built a labyrinth of tunnels, some passing under the border into Israel in order to launch attacks.
Israel has besieged the Gaza Strip, home to nearly two million people, since Hamas wrested control of the territory from the rival Fatah movement of Palestinian president Mahmud Abbas in 2007. Since then, it has conducted three major assaults on the territory.