Ruling Palestinian movement Hamas has said it will double its armed force to 12,000 men, hours after President Mahmoud Abbas declared it illegal.
Relations between the rivals have worsened in recent months
Mr Abbas had demanded the militia's integration into existing security structures.
Hamas and Mr Abbas's Fatah party have been locked in a power struggle since the Islamic group won parliamentary elections a year ago.
The dispute has centred around control of the Palestinian security forces.
Mr Abbas, who was elected in a separate presidential vote, claimed authority over most of the security forces.
But last year saw Hamas form its own unit, known as the "executive force". Members of the Hamas militia have clashed with the existing pro-Fatah security forces from time to time.
Mr Abbas has agreed in recent months to integrate the Hamas unit into existing security forces, but those efforts have failed to make progress.
'Misplaced and useless'
"In light of continued security chaos and assassinations that got to a number of our fighters... and in light of the failure of existing agencies and security apparatuses in imposing law and order and protecting the security of the citizens, President Mahmoud Abbas decided to reshuffle the security forces and its leadership and to consider the executive force, officers and members, illegal and outside the law," Mr Abbas's office said in a statement on Saturday.
"It will be dealt with accordingly so long as it is not immediately folded into the legal security forces."
Mr Abbas made the announcement two days after members of the Hamas force attacked the home of a senior security commander in Gaza.
The man, a member of a security service loyal to Mr Abbas's Fatah party, and several of his bodyguards were killed.
Hamas spokesmen described the announcement as "misplaced and useless", and accused Mr Abbas of giving the "green light" for attacks on Hamas security men.
Islam Shahwan, a spokesman for the executive force, said: "A decision was taken to increase the number of the executive force to 12,000.
"We call upon all sincere citizens to prepare themselves to join the force."
Friday saw Mr Abbas and the Palestinian Prime Minister, Ismail Haniya of Hamas, meet for the first time in two months.
After the meeting, Mr Haniya said they would appeal for calm and a return to negotiations on forming a government of national unity.
Separately, Reuters news agency reported that the US administration was planning to provide security forces loyal to Mr Abbas with $86.4m.
The agency quoted a US government document saying that the money would "assist the Palestinian Authority presidency in fulfilling PA commitments... to dismantle the infrastructure of terrorism and establish law and order".
Fatah advocates negotiations to found a state alongside Israel, while Hamas refuses to recognise Israel's right to exist.