Prime minister Mohammad Shtayyeh called off the arrangement after it emerged the doses were due to expire within the next two weeks, according to officials.
"They told us the expiration date was in July or August, which would allow lots of time for use," health minister Mai Alkaila told reporters on Friday night.
"But it turned out to be in June. That's not enough time to use them, so we rejected them."
Ms Alkaila added that she said health officials who inspected the first consignment of 90,000 vaccines found they “did not meet standards” and had been returned.
Israel’s government, which is largely shut down for the weekly Sabbath on Friday evening, did not immediately comment on the cancellation of the deal.
Under the teams of the agreement, the Palestinian Authority (PA) was to transfer a similar number of vaccines to Israel in September or October once it had received a shipment of 4 million doses that it has ordered from Pfizer.
The PA said the agreement had been "approved in order to speed up the vaccination process" in the occupied West Bank and Gaza - but faced heavy criticism on social media, with many people accusing them of accepting sub-par vaccines and suggesting they might not be effective.
Israeli prime minister Naftali Bennett's office had said in its statement announcing the deal that the doses were due to "expire soon", without specifying any dates.
"We will continue to find effective ways to cooperate for the benefit of people in the region," tweeted foreign minister Yair Lapid.
Human rights groups have criticised Israel for not doing more to ensure Palestinian access to doses in the West Bank and Gaza, territory it captured in a 1967 war.
Israel has fully reopened after vaccinating some 85 per cent of its adult population of just under 6 million and has offered vaccines to the more than 100,000 Palestinians from the occupied West Bank who work inside Israel, as well as Palestinians in east Jerusalem.
Around 380,000 Palestinians in the West Bank and 50,000 in Gaza have received one dose of the vaccine, amounting to around 30 per cent of the eligible population.
Additional reporting by AP and Reuters