A federal court in the US has frozen all the assets held by the Palestinian Authority (PA) in the country.
The militant group Hamas has been blamed for the killing
The ruling by the court in Rhode Island comes after the authority failed to compensate relatives of a Jewish couple shot dead by Hamas militants in 1996.
Both the PA and Hamas were ordered to compensate the family, under a US law allowing suits against groups responsible for killing US citizens.
The Palestinian envoy in Washington says the order paralyses his office.
The PA's assets in the US are reported to be worth at least $1.3bn.
US citizen Yaron Ungar and his Israeli wife were returning from a wedding near the West Bank, when their car was sprayed with bullets.
Three Hamas militants were jailed for the killings.
In 2000 relatives of the victims filed a case in Rhode Island, where the lawyer handling the Ungars' estate is based, in an effort to hold the Hamas leadership responsible.
Their lawsuit also named the PLO and the PA as defendants, because both allegedly provided a safe haven for Hamas.
In April, the relatives asked the court to freeze the PA's US assets, saying they were being transferred out of reach of US courts.
The following month, a US judge issued an injunction preventing the group from using them pending the ruling.
The head of the PA office in Washington, Hasan Abdel Rahman said he has been unable to pay employees for the past three months.
"It paralyzes the function of the office, and I think that is the intention of the plaintiffs," he told AP news agency after the latest decision.
Mr Rahman called on the US administration to intervene.