The schools will be replaced by Jerusalem municipal-run schools which are supported by Israel’s education ministry as decided by the occupying country’s National Security Council.
UNRWA, however, said that Israeli authorities did not inform the group of its plan to close down schools.
"UNRWA's existence in Jerusalem is not a gift from Israel," Sami Meshasha, the spokesperson for the agency said in a press statement Sunday.
"There are bilateral agreements binding on Israel to respect the agency's installations, jurisdiction, and immunity in Jerusalem," he said, adding, "In addition, Israel is a party to the 1946 Refugee Convention, and such attempts are in violation of this Convention."
UNRWA runs seven schools serving a total of 3,000 students in two refugee camps in occupied East Jerusalem.
Hanan Ashrawi, a member of the Palestinian Liberation Organisation (PLO) executive committee, said the Israeli decision is "a direct insult to the international community and disregard for its laws and decisions and institutions".
"This provocative step deliberately targets Palestinian refugees and their rights guaranteed by international and humanitarian law. It also targets Jerusalem and its institutions within the framework of the occupying state's strategy of Judaizing the Holy City, promoting the policy of ethnic cleansing, forced displacement, extending control over all aspects of life, and imposing new facts on the ground," she added.
Jerusalem’s former Israeli mayor Nir Barakat accused UNRWA of operating illegally and promoting incitement against Israel.
"We are putting an end to the lie of the 'Palestinian refugee problem' and the attempts at creating a false sovereignty within a sovereignty," Barkat said.
In September, the United States administration decided to cut funding for UNRWA, a move welcomed by Israel.
The United Nations founded UNWRA in 1948 to help almost 700,000 Palestinians who were forcibly displaced after the state of Israel was established.
At present, UNRWA provides service to around five million Palestinian refugees in Jordan, Lebanon, Syria, the occupied Palestinian territories, and the besieged Gaza Strip.