Palestinian president Mahmud Abbas has accepted the resignation of his prime minister, Salam Fayyad, according to reports on Saturday.
"Fayyad met Abbas for half an hour in the president’s headquarters in Ramallah in the West Bank and officially handed him his written resignation,” the official told AFP.
Palestinian news agency Wafa confirmed that Abbas accepted Fayyad's resignation on Saturday.
"Abbas agreed to accept Fayyad's resignation," a Palestinian official told Wafa.
Wafa said Abbas had asked Fayyad to stay on as caretaker until a new government was formed.
Fayyad and Abbas have been at odds over government policies and the economic differences between the two men came to a head over a finance portfolio.
The prime minister was widely expected to resign despite pressure from the US for him to remain in his post.
On Friday, US Secretary of State John Kerry called Abbas to try and persuade him to keep the American-educated Fayyad in office.
A senior Palestinian official told Reuters that the Americans and some Europeans were trying to solve the crisis between Abbas and Fayyad.
"They don’t want to see Fayyad removed," the official said. "But they need to know that President Abbas is the only one who can decide on this matter."
Abbas’s Palestinian Authority is in serious financial crisis, partly as a result of non-disbursement of promised foreign funding, although the US Congress quietly unblocked $500 million in aid last month.
AFP contributed to this report.