Netanyahu said Thursday that UNESCO has become a "theater of the absurd because instead of preserving history, it distorts it".
It will establish an observer mission at the Paris-based organisation to replace its representation, the state department said. In addition to anti-Israel bias, the department cited "the need for fundamental reform" and "mounting arrears" at the organization.
The Israel controversy re-ignited this summer after UNESCO named Hebron's city center a Palestinian World Heritage Site.
Many saw the vote to include Palestine as evidence of long-running, ingrained anti-Israel bias within the United Nations, where Israel and its allies are far outnumbered by Arab countries and their supporters.
"This decision was not taken lightly, and reflects USA concerns with mounting arrears at UNESCO, the need for fundamental reform in the organization, and continuing anti-Israel bias at UNESCO", she added.
"UNESCO is about promoting our ideals and values through culture, education and science", France's United Nations ambassador Francois Delattre told reporters in NY, adding that "we need an America that stays committed to world affairs".
Currently, 23 places in the USA are on the UNESCO list of world heritage sites, though nothing American appears in the organization's list of "intangible cultural heritage".
Israel has accused UNESCO of making a politically motivated move, part of what it says is an attempt to deny the Jewish character and heritage of certain key sites in the Holy Land.
UNESCO's executive board plans to select her successor Friday in a secret ballot.
In a lengthy written statement, Irina Bokova, Unesco's director-general, expressed regret at the American withdrawal and said that the American people shared the organization's goals.
"At the time when conflicts continue to tear apart societies across the world, it is deeply regrettable for the United States to withdraw from the United Nations agency promoting education for peace and protecting culture under attack".
Israel's ambassador to the United Nations, Danny Danon, also praised Washington's move as heralding "a new day at the U.N., where there is a price to pay for discrimination against Israel". Permanent Representative to the UN Nikki Haley has repeatedly denounced these actions, and said the USA was "evaluating" whether or not it should continue as a member of the organization.
The United States pulled out of UNESCO in 1983 under President Ronald Reagan but rejoined the body in 2003 when President George W. Bush was in power. The Reagan administration withdrew from the organisation in 1984 - accusing the agency of corruption and an ideological bias towards the then Soviet Union - but the United States rejoined in 2002.
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