The Palestinian leadership on Saturday described as "irresponsible" Australia's recognition of west Jerusalem as Israel's capital, saying it violated international law.
The country became one of just a few to follow US President Donald Trump's lead and recognise the contested city as Israel's capital, saying.
Australia said it would open a defence and trade office in the west of the holy city and Prime Minister Scott Morrison also committed to recognising a future state of Palestine with east Jerusalem as its capital.
Both Israelis and Palestinians claim Jerusalem as their capital.
Most foreign nations avoided moving embassies there to prevent inflaming peace talks on the city's final status -- until Trump unilaterally moved the US embassy there earlier this year.
Senior Palestinian official Saeb Erekat said in a statement that the Australian decision to open a trade office in the city violated a United Nations resolution.
"From the beginning, we've perceived the Australian government's decision to recognise Jerusalem as Israel's capital as one wherein petty domestic politics steer irresponsible policies that contradict world peace and security," he said in a statement.
"All of Jerusalem remains a final status issue for negotiations, while east Jerusalem, under international law, is an integral part of the occupied Palestinian territory," he added.
Morrison earlier Saturday announced his country's move on Jerusalem.
"Australia now recognises west Jerusalem -- being the seat of the Knesset and many of the institutions of government -- is the capital of Israel," he said in Sydney.