The Israeli parliament passed laws banning the UN Relief and Works Agency for Palestine Refugees (UNRWA) working on Israeli soil and deeming it a terror group, though they won't come into effect immediately.
The move has drawn international condemnation, including from Australia and a host of humanitarian groups.
While UNRWA is not the only aid agency in Gaza, "it's the longest standing and has historically and recently carried the principal responsibility for humanitarian relief in Gaza", international law expert Don Rothwell said.
Israel accuses the agency of turning a blind eye to terrorist links within its ranks and allowing Hamas to use its facilities.
Palestinian groups have renewed their calls for sanctions against Israel for human rights abuses. (James Ross/AAP PHOTOS)
The UN agency says it takes decisive action against anyone with terror links and denies willingly allowing terrorists to use its facilities.
UNRWA investigated Israeli allegations and fired nine staff, while dismissing accusations against 10 others because of a lack of evidence.
International partners, including Australia, paused aid to the agency when the allegations surfaced.
The federal government reinstated payments after intelligence agencies determined it wasn't a terrorist organisation and a strict probity agreement was put in place.
Israel was obliged by two international court orders from January and March to facilitate humanitarian aid and relief in the besieged strip, including by co-operating directly with the UN, Professor Rothwell said.
"Prohibiting UNRWA from operating in Gaza absent providing support for an effective alternate humanitarian aid organisation violates Israel's international law obligations," he told AAP.
Israel's blockade of northern Gaza and throttling of aid and supplies further broke international law, he said.
Prof Rothwell predicted "unilateral sanctions being imposed on Israel by certain western states, possibly including Australia".
Palestinian groups and the Greens have renewed their calls for sanctions against Israel for human rights abuses, accusing Australia of not going far enough in its condemnation.
"The ban on UNRWA activities not only exacerbates the dire humanitarian crisis in Gaza but also highlights a systematic campaign to strip Palestinians of their basic human rights and dignity," Australian Federation of Islamic Councils president Rateb Jneid said.
"The international community's failure to hold Israel accountable encourages further violations and destabilises the prospects for peace."
Legal expert Don Rothwell says Israel is violating international law by banning the aid body. (Alan Porritt/AAP PHOTOS)
The Palestinian delegation to Australia shared the Ministry of Foreign Affairs and Expatriates' statement lashing the Israeli laws and calling for immediate international action.
"The ministry warns of the catastrophic consequences these laws could have on Palestinian refugees in Jerusalem, Gaza, the West Bank and other UNRWA operating areas," it said.
"UNRWA is a lifeline for over 5.9 million Palestinian refugees ... (and) crucial for regional stability until the right of return is fulfilled."
Prof Rothwell envisaged further proceedings against Israel in the International Court of Justice and a UN Security Council direction for Israel to facilitate more aid.
The US has urged Israel to pause its implementation of the legislation with Pentagon press secretary Pat Ryder noting it would pose significant risks for the millions of Palestinians who depend on aid.
Though Israel insists other humanitarian agencies can take UNRWA's place, the agency's staff maintain there is no clear alternative.
