The head of the UN agency for Palestinian refugees on Monday rejected Israel's assertion that other organisations could replace it in Gaza, insisting that only a Palestinian state "institution" could take over.

Israel has banned UNRWA from operating in Gaza and agency chief Philippe Lazzarini hit back after Israel's ambassador Daniel Meron told reporters that his country was "working to find substitutes to the work of UNRWA inside Gaza".

Israel was actively "encouraging UN agencies and NGOs to take over," he said.

Lazzarini told reporters that UNRWA was still "it can't be an NGO, it can't be another UN agency".

"The only viable alternative are capable Palestinian institutions ... in a Palestinian state."

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