The UN agency for Palestinian refugees said on Friday it had sacked several employees accused by Israel of involvement in Hamas's unprecedented October 7 attack, prompting the United States to suspend critical funding.

The decision had been taken "to protect the agency's ability to deliver humanitarian assistance," said UNRWA chief Philippe Lazzarini.

"Any UNRWA employee who was involved in acts of terror will be held accountable, including through criminal prosecution," he said.

Israeli authorities had provided information about the staff members' alleged involvement, he said.

UN chief Antonio Guterres "is horrified" by the accusations and an "urgent and comprehensive independent review of UNRWA will be conducted," said his spokesman Stephane Dujarric.

The US State Department said it was "extremely troubled" by the allegations and has "temporarily paused additional funding" while it reviewed the claims and the UN's plan to address concerns.

Twelve employees "may have been involved," it added.

The United States was the agency's biggest bilateral donor in 2022, contributing more than US$340 million, according to UNRWA's website.

The unprecedented October 7 Hamas attack resulted in the death of around 1,140 people in Israel, most of them civilians, according to a tally based on official Israeli figures.

Militants also seized about 250 hostages and Israel says around 132 of them remain in Gaza, including the bodies of at least 28 dead captives.

At least 26,083 Palestinians, around 70 percent of them women, young children and adolescents, have been killed in the Gaza Strip in Israeli bombardments and ground offensive since then, according to the Hamas government's health ministry. (AFP)