JERUSALEM, Nov 30 (Reuters) - Israel announced on Wednesday it was releasing millions of dollars in tax revenues it owes the Palestinian Authority, lifting a month-old freeze that had threatened to undermine the West Bank government.

Prime Minister Benjamin Netanyahu had come under international pressure to hand over the funds, about $100 million a month that includes import duties Israel collects on behalf of the PA.

The money is vital for paying civil servants employed by the PA.

In a punitive measure, Israel began withholding the funds on Nov. 1, a day after the UN cultural agency UNESCO voted to admit Palestine as part of the PLO's slow-moving drive for UN statehood recognition.

Israel has called on the PLO to abandon any bids for recognition in the UN.

An Israeli government official said tax payments for October and November would be handed over to the Palestinian Authority, but Netanyahu made clear that he reserved the option to halt them again.

"Netanyahu approved the resumption of tax revenue transfers, at this stage, to the Palestinian Authority," said a statement issued by the prime minister's office after his inner cabinet gave its backing.

The statement cited what it described as a suspension of "unilateral moves" by the Palestinian Authority, a reference to any further bids for status upgrades in UN bodies.

"If the Palestinian Authority takes unilateral steps again, the transfer of funds will be reconsidered," the statement said.

Commenting on the decision to transfer the revenues, Saleh Rafat, a member of the Palestine Liberation Organization's executive committee, said: "This is first of all Palestinian money ... Israel should have retracted this decision weeks ago."

Last week, Ramallah-based Prime Minister Salam Fayyad said the Palestinian Authority was "fast approaching the point of being completely incapacitated" and would not be able to pay about 150,000 workers this month if Israel did not release the money.

Signaling on Monday that a decision to transfer the funds was imminent, Netanyahu said Israel had "no interest in causing the collapse of the Palestinian Authority".