Earlier on Monday, Fayyad resigned and dissolved his cabinet in a major political shake-up ahead of Palestinian elections to be held by September.

However, Abbas immediately reinstated him as premier and tasked him with forming the new government. "Abbas reappointed Fayyad and asked him to form a new government," an official said.

Sources said that the new government will be formed within two weeks. The sources added that Fayyad will hold consultations with the majority of Palestinian political factions to include them in his new Cabinet.

The new government will also have to tackle plans for holding presidential and parliamentary elections by September — a deadline which was announced on Saturday by the executive committee of the Palestine Liberation Organization (PLO).

Last week, the cabinet also approved plans to hold local elections on July 9, in what will be the first time Palestinians have gone to the polls since 2006.

But both announcements were firmly rejected by Gaza's Hamas rulers, who have been locked in years of bitter rivalry with the Ramallah-based Palestinian Authority of Abbas, which is dominated by the Fatah movement.

"This procedure is invalid because president Abbas has no legitimacy and is not fit to organize such elections," Hamas spokesman Fawzi Barhum said.

Ahmad Al-Majdalani, the outgoing labor minister, said the reshuffle will target at least half of the ministries. Al-Majdalani added that most of the key portfolios would be under the reshuffle, including the foreign, health, economy, labor, justice, finance and information ministries.

Other Palestinian sources said that the new government would focus on implementing a series of recent decisions by the Palestinian leadership aimed at ending internal split and promoting national unity with Hamas movement.

Meanwhile, Hamas said that the resignation of the Fayyad government lacks any meaning and bears no reform or change.

Fawzi Barhoum, a Gaza-based Hamas spokesman, said that "no matter how this government changes its skin, it shall always be illegal as it is not the people's choice."

Barhoum called on the Palestinian people and the international community not to cooperate with the new Cabinet.

Hamas' refusal to participate in or recognize elections called by Abbas has torpedoed plans to hold a general election in January 2010 and local elections in July.

The group's stance is likely to mean elections will be held only in the West Bank.