Nine countries have paused funding to the UN's Relief and Works Agency (UNRWA) amid claims several staff members participated in Hamas' October 7 raids.
More than 1,200 Israelis were murdered - many in their homes - during the surprise cross-border invasion by militants from Gaza.
The UNRWA's commissioner-general, Philippe Lazzarini, said he had "terminated" the contracts of those said to have been involved.
The US, UK and other western nations announced on Saturday that they would freeze their funding over complaints 12 members of the agency’s staff took part in the attack.
Canada, Australia, Germany, Italy, the Netherlands, Switzerland and Finland also joined in freezing their funding.
But UN head Antonio Guterres called later on Saturday for governments to continue, saying that “any UN employee involved in acts of terror will be held accountable, including through criminal prosecution”.
His statement added: "The Secretariat is ready to cooperate with a competent authority able to prosecute the individuals in line with the Secretariat's normal procedures for such cooperation.
"The tens of thousands of men and women who work for UNRWA, many in some of the most dangerous situations for humanitarian workers, should not be penalised. The dire needs of the desperate populations they serve must be met."
Mr Guterres’s said nine of the 12 people implicated had been terminated with one having died while two others are being investigated.
He added: "While I understand their concerns - I was myself horrified by these accusations - I strongly appeal to the governments that have suspended their contributions to, at least, guarantee the continuity of UNRWA's operations.”
The UK Foreign Office had said in a statement: “The UK is appalled by allegations that UNRWA staff were involved in the October 7 attack against Israel, a heinous act of terrorism that the UK Government has repeatedly condemned.
“The UK is temporarily pausing any future funding of UNRWA whilst we review these concerning allegations.
“We remain committed to getting humanitarian aid to the people in Gaza who desperately need it.”