Britain's new government announced on Friday it has lifted the January funding suspension for the UN agency for Palestinian refugees (UNRWA) and committed to providing £21 million ($27 million) in new funds.

"We are overturning the suspension of UNRWA funding," British foreign minister David Lammy told parliament, adding that the UN agency was "absolutely central" to providing humanitarian aid to Gaza, which is facing a humanitarian crisis sparked by Israel's war against Hamas.

"Humanitarian aid is a moral necessity in the face of such a catastrophe and it is aid agencies who ensure UK support reaches civilians on the ground", Lammy added.

UNRWA coordinates almost all of the aid distribution in Gaza, but has been struggling with a lack of finances after international donors cut off funding in January due to Israeli claims that some UNRWA staff were involved in Hamas's October 7 attack that triggered the war.

A number of countries have since resumed funding but the UK and the agency's largest donor the United States had been holding out.

Lammy said that while he was "appalled" by the allegations, he was reassured after reforms suggested by an independent review that "UNRWA is ensuring they meet the highest standards of neutrality and strengthening its procedures, including on vetting".

UNRWA spokeswoman Juliette Touma told AFP the lifting of the UK suspension was "excellent and very welcome".

"It's very timely and comes at a critical time as UNRWA continues to be the lead agency on the humanitarian frontlines in Gaza," she added.

The UK director of Human Rights Watch, Yasmine Ahmed, said the resumption of UK funding "will save lives and should be applauded".

"Withholding funding only exacerbated the horrific consequences of what has been a concerted campaign by the Israeli government to malign, discredit and undermine UNRWA's critical and lifesaving work," she added.

Lammy, appointed foreign secretary just two weeks ago after Labour's landslide general election win, reiterated a call for an "immediate ceasefire" and release of hostages.

"Britain wants to see an immediate ceasefire. The fighting must stop. The hostages must be released. Much, much more aid has got to enter Gaza.... This horror must end, now", Lammy said in his first address to the House of Commons in the role.

The war started with Hamas's October attack on southern Israel on October 7, which resulted in the deaths of 1,195 people, mostly civilians, according to an AFP tally based on Israeli figures.

Israel responded with a military offensive that has killed at least 38,848 people in Gaza, also mostly civilians, according to the health ministry in Hamas-ruled Gaza, and caused a devastating humanitarian crisis.