Mr Trump described the move as "a long overdue step" to advance the Middle East peace process. Palestinian President Mahmoud Abbas responded to the decision by saying the US could no longer be a peace broker.

The fate of the ancient city is one of the thorniest issues between Israel and the Palestinians.

Mr Trump said the US would support a two-state solution, if approved by both sides.

But Mr Abbas said that his "deplorable and unacceptable measures deliberately undermine all peace efforts". 

The Palestinian leader earlier warned of "dangerous consequences" through a spokesman, a sentiment echoed by other Arab leaders, who said there could be unrest.

Demonstrations have already taken place outside the US consulate in Istanbul, Turkey, and a large labour union in Tunisia has called for mass protests.

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