Fayyad was reluctant to be seen as engaging with Israel on a day when more than 1,000 Palestinian prisoners began a hunger strike to protest against their conditions in Israeli jails, the officials said.
Israeli Prime Minister Benjamin Netanyahu's office had released no details of a time or venue for what were to have been the highest-level talks with the Palestinians since peace negotiations broke off in 2010.
But Israeli officials, asking for anonymity because no official announcement on the talks had been made, had said Monday that the meeting was to be held on Tuesday.
Palestinian officials said Fayyad was to have delivered a letter to Netanyahu from President Mahmoud Abbas detailing grievances on the stalled peace talks and reiterating a call to halt settlement building.
Instead, the letter may be handed to a senior Netanyahu aide by PLO chief negotiator Saeb Erekat later Tuesday or Fayyad might meet the Israeli leader on a less politically charged date, the officials said.
Earlier, an Israeli official said Netanyahu would reiterate his call for talks to resume without any preconditions and for a meeting with Abbas.Divisions
The possible last-minute cancellation may cast new light on divisions within the Palestinian political establishment, which has struggled to craft a winning strategy to achieve statehood.
The letter could serve as a prelude to a renewed unilateral Palestinian move for statehood recognition in the United Nations, an effort suspended last autumn amid stiff opposition from Washington and Israel.
Palestinians said the letter would accuse Israel of failing to carry out its obligations under a 2003 "road map" agreed by both sides, which include a halt to settlement activity.
Foreign governments have viewed the letter with apprehension, welcoming a rare high-level Israeli-Palestinian meeting, and warning against any threatening language.
US-sponsored peace talks froze in late 2010 after Netanyahu rejected Palestinian demands that he extend a partial construction freeze he had imposed at Washington's behest to coax them into talks.
Netanyahu says the future of settlements, which the Palestinians and many countries regard as illegal, should be decided in peace negotiations.
Palestinian officials said the letter is a watered-down version of previous drafts which suggested the Palestinian Authority, run by Abbas, would dissolve itself or sever ties with Israel if there was no progress.
Nonetheless, the Palestinians may take their case to the UN General Assembly after failing to secure backing at the Security Council in 2011, and even though only the Security Council - where the United States has veto power - has the authority to grant full UN membership.
RAMALLAH (Reuters) -- A planned meeting Tuesday between the Israeli and Palestinian Authority prime ministers may be canceled or postponed after Salam Fayyad refused to attend, senior Palestinian officials said.