Palestinian president Mahmud Abbas on Sunday formally accepted the resignation of his newly-installed prime minister Rami Hamdallah after just more than two weeks on the job, a senior source told AFP.

"President Abbas has accepted the resignation of Hamdallah after he refused to work with two deputies," he said, speaking on condition of anonymity.

"He asked him to stay on in a caretaker role until he choses someone else to form a new government."

The crisis erupted on Thursday when Hamdallah unexpectedly tendered his resignation over what government officials said was a "power struggle" resulting from Abbas's decision to install two deputies working directly under him.

At a meeting with Abbas on Friday, Hamdallah had withdrawn his resignation, a high ranking government official said, but after a further meeting on Sunday morning, the president decided he would accept it.

"Hamdallah initially agreed to withdraw his resignation (on Friday) but he insisted yesterday during a meeting with the president on either not having any deputies, or having deputies with restricted powers," the source said.

"This led to a sharpening of the dispute over the powers of the prime minister, which ended up with the president accepting his resignation."