Palestinian Prime Minister Salam Fayyad resigned late on Saturday, ending months of rising tension with Palestinian President Mahmud Abbas, despite US efforts to keep him in place.

The resignation of the US-educated economist, who won broad international acclaim for his state-building efforts since becoming prime minister in 2007, comes just days after Washington made a fresh push to revive long-dormant peace talks.

Rumors that Fayyad would either resign or be told to step down by Abbas have been rife in recent weeks after long-standing differences between the two came to a head over the finance portfolio.

Abbas accepted Fayyad's resignation at a brief meeting at the Muqataa presidential compound in Ramallah, but officials said he had asked the 61-year-old to stay on in a caretaker role until a new prime minister can be appointed.

Mahmoud Al-Aloul, a member of the Central Committee of Abbas' Fatah party, told Xinhua News Agency that Abbas will start the discussions to assign a new prime minister to replace Fayyad after he ends an official visit to Kuwait scheduled for Monday.

Al-Aloul said Abbas has up to 60 days for a new government to be sworn in, adding that the discussions will involve all factions, including the Islamic Hamas movement that runs the Gaza Strip.

Fayyad under pressure

Hamas does not recognize Fayyad. Hamas has ruled Gaza by its own administration although Abbas had fired it after his forces lost the coastal enclave.

In 2011 and 2012, Egypt and Qatar brokered reconciliation deals between Hamas and Fatah, which envisioned a transitional unity government ruling Gaza and the West Bank until elections. However, differences between the feuding Palestinian rivals prevented the agreements from holding.

On Saturday, Hamas said Fayyad's resignation had nothing to do with the national reconciliation and that it was part of the disagreement between Fatah and Fayyad, an independent former World Bank expert.

Fayyad, a political independent, had come under increasing criticism as the Palestinian Authority lives through its worst-ever financial crisis, with Abbas's ruling Fatah movement openly deriding his economic policies as "confused".

US lobbying

But Washington has lobbied hard for the former World Bank official to be kept on, with US Secretary of State John Kerry phoning Abbas late on Friday to urge him to find common ground with his prime minister, Palestinian officials said.

Following Saturday's developments, Washington hailed "the important roles played by both president Abbas and prime minister Fayyad" in the push towards a Palestinian state, National Security Council spokeswoman Caitlin Hayden said.

"Prime Minister Fayyad has been a strong partner to the international community and a leader in promoting economic growth, state-building and security for the Palestinian people," she said.

Long-running tensions between Fayyad and Abbas came to a head six weeks ago over the resignation of finance minister Nabil Qassis, with Fayyad accepting it while Abbas did not.

Fayyad himself was finance minister for five years from 2002, and after being appointed prime minister in 2007, he continued to hold both portfolios until Qassis took over in May 2012.

He was deeply unpopular with Fatah, with a top official from the party's Revolutionary Council on Sunday expressing relief at his departure.

"Fatah is relieved over Fayyad's timely resignation which was inevitable," said secretary-general Amin Maqbul.

"Fayyad's government failed miserably in steering through the economic crisis and put the PA (Palestinian Authority) in a lot of debt," he said.

Commentators said the problem stemmed from the fact that Fayyad did not belong to Abbas's Fatah.