The decision to release the money was made at a meeting of Prime Minister Binyamin Netanyahu's senior cabinet ministers after the authority "stopped taking unilateral moves," Netanyahu's office said.
The unilateral moves were believed to be the authority's campaign for U.N. membership and for a unity deal with rival Palestinian faction Hamas, both of which Israel believed have stalled for now, Israeli officials told The Wall Street Journal.
"If the Palestinians return to taking unilateral steps, we will weigh again the transfer of funds," Netanyahu's office said.
The lone dissenter on Wednesday's Israeli decision was hard-line Foreign Minister Avigdor Lieberman.
Palestinian Prime Minister Salam Fayyad had warned that without the $100 million, the authority could not pay November salaries to about 150,000 employees. He described the authority as nearing the brink of financial collapse.
An authority spokesman told broadcaster al-Jazeera the authority would have no comment until the money was transferred.
U.S. and U.N. officials appealed to Netanyahu to lift the sanctions, which Israel imposed after the authority was accepted into the U.N. cultural agency UNESCO as part of a broader Palestinian effort to be admitted as a full U.N. member state.
Tony Blair, representing the so-called Mideast quartet of the United States, European Union, United Nations and Russia, pressed Netanyahu and other ministers, saying withholding the money "only benefits those who oppose peace and Israeli-Palestinian cooperation."
The monthly transfer is required under the 1994 portion of the Declaration of Principles on Interim Self-Government Arrangements, known as the Oslo accords, that formalized relations between Israel and the Palestinians.
The money is made up of customs duties Israel collects for Palestinians on foreign goods that arrive through Israeli ports, value-added taxes on major Palestinian purchases of Israeli goods and excise taxes on Palestinian-bought Israeli fuel.
A smaller tax transfer on goods bought by Israeli businesses in the West Bank is made monthly in the other direction.
Israel argued the Palestinian U.N. membership campaign and its Hamas reconciliation overtures amounted to abrogation of the Oslo accords, freeing Israel to respond with sanctions.
Hamas, a Sunni Islamist political party that governs the Gaza Strip, has not renounced violence or recognized Israel and is classified as a terrorist organization by Israel, the United States, Canada, Japan and the European Union.