The decision was another sign of a hardening of Palestinian Authority policy towards its Hamas rivals, who control the enclave.
The Western-backed Authority and Hamas are locked in a struggle over a unity deal that could loosen the group's hold on the Gaza Strip, territory it won control of from forces loyal to Palestinian President Mahmoud Abbas in 2007.
A Hamas spokesman, Sami Abu Zuhri, called the move "a grave escalation and an act of madness".
Israeli authorities deal with the PA on electrical and fuel supplies for Gaza because Israel does not engage with Hamas, which it regards as a terrorist organisation.
The PA has already taken several steps, such as taxing Israeli fuel it purchases for Gaza's sole power plant -- which has been unable to come up with the funds and stopped operating two weeks ago -- to pressure Hamas into new Palestinian elections.
Regaining a measure of control over Gaza could empower Mr Abbas politically as Israel and the Palestinians await a widely expected push by US President Donald Trump for a revival of peace efforts that stalled in 2014.
"The Palestinian Authority has informed it will immediately stop paying for the electricity that Israel supplies to Gaza through 10 power lines that carry 125 megawatts, or some 30 per cent of Gaza's electrical needs," said a statement from COGAT, Israel's military liaison agency with the PA.
With the generating plant off-line and Egyptian supplies via power lines notoriously spotty, Israeli electricity has been vital, keeping power on for Gazans, although for only four to six hours a day.
Spokesmen for the Palestinian Authority and the Palestinian Energy Authority declined comment.
Israel charges the PA 40 million shekels ($11 million) a month for the electricity, deducting the sum from the transfers of Palestinian tax revenues that Israel collects on behalf of the Authority.
Israeli sources said Gaza needs 400 megawatts of power to ensure full 24-hour supply to its residents.
That goal is not being met even when the power plant is operational. It usually produces 60 megawatts, added to the 125 megawatts supplied by Israel and 25 megawatts that come across power lines from Egypt.
(Additional reporting by Ali Sawafta in Ramallah and Nidal al-Mughrabi in Gaza, Editing by Angus MacSwan)
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