The coalition of Prime Minister Benjamin Netanyahu will unravel if Israel goes ahead with either the planned demolition of two illegal West Bank outposts or the handover of Palestinian tax money to the Palestinian Authority, Foreign Minister Avigdor Lieberman said on Monday.

Earlier this month, the cabinet postponed the planned demolition of the illegal Givat Assaf outpost by half a year, with settlers pressing to halt the demolition of another outpost, Migron.

Speaking at the weekly meeting of his Yisrael Beiteinu faction, Lieberman said that he had made it clear to Netanyahu that "Migron is not an illegal outpost," adding that it was a settlement established with then Defense Minister Moshe Arens and chief of GOC Central Command standing near the cornerstone."

"How did it become all of a sudden illegal?" Liberman asked, dismissing the 2005 Talia Sasson report on illegal outposts over the latter's later involvement in the left-wing Meretz party.

"That's the reason we should tear down a whole settlement? [A settlement] in which 30 percent of the residents are security officials, and which has since brought forth children who went on to serve in the army?" the FM added.

Lieberman added that he held the same position regarding Givat Assaf, saying that the demolition of one or both of the outposts would be a cause to break up the cabinet. "Yisrael Beiteinu won't be the only one to leave, several Likud members would find such a situation impossible."

Another condition presented by the foreign minister is the transfer of Palestinian tax money collected by Israel to the PA, saying that such a move would be crossing a "red line."

On Sunday, Netanyahu and his forum of eight senior ministers decided continue Israel's freeze on the transfer of the Palestinian Authority's tax money, due to the latest moves by Fatah and Hamas aimed at establishing a unity government.

Israel's security establishment had been pushing for the handover, arguing that, faced with dwindling funds, the PA would not be able to pay its security officials, which could weaken Palestinian control of the West Bank.

However, speaking to fellow party members on Monday, Lieberman made it clear that recent unity talks made it impossible for Israel to transfer the tax funds.

"[The PA] is going to join a Hamas government, their pushing out [Palestinian] Prime Minister Salam Fayyad, who is a moderate and reasonable man. They've given a $5,000 grant to everyone of the terrorists freed in the Shalit deal, and they want to build an apartment for each one of them," Lieberman said, adding: "Say each apartment costs a few thousands dollars, multiply that by a thousand."

"Where is the money going to come from? From the money we give them. No way are we going to agree to the money's transfer under these conditions," he added.