Erekat said in a statement on Saturday that the Australian decision to open a trade office in the city violated a United Nations resolution.
"From the beginning, we've perceived the Australian government's decision to recognize al-Quds as Israel's capital as one wherein petty domestic politics steer irresponsible policies that contradict world peace and security," he said in a statement, AFP reported.
"All of al-Quds remains a final status issue for negotiations, while east Jerusalem, under international law, is an integral part of the occupied Palestinian territory," he added.
Australia became one of just a few to follow United States President Donald Trump's lead and recognize the city as Israel's capital.
Israel, meanwhile, welcomed Australia's move as "a step in the right direction.”
Australia said it would open a defense and trade office in the west of the holy city and Prime Minister Scott Morrison also committed to recognizing a future state of Palestine with east Jerusalem as its capital.