In a brief televised speech on Friday, Abbas said all official contacts would be suspended until Israel removed metal detectors installed there last week.
"I declare the suspension of all contacts with the Israeli side on all levels until it cancels its measures at Al-Aqsa Mosque and preserves the status quo," Abbas said, according to Al Jazeera news network.
The announcement follows the killing of at least three Palestinians in clashes in Jerusalem and the West Bank on Friday after Israeli police fired live ammunition, tear gas, and rubber coated bullets to disperse protesters.
Hundreds more were wounded.
Three Israelis were also killed in a knife attack in the occupied West Bank illegal settlement of Neve Tsuf late on Friday.
Muslim leaders believe that the metal detectors are part of an Israeli attempt to expand control over the site.
The UN has called for de-escalation of violence and tensions in Jerusalem.
Farhan Haq, the UN spokesman, told reporters on Friday that "ultimately, what is important is for all of the people at the holy sites, including all the worshippers at the holy sites, to feel that their religious liberties are being respected".