The foreign ministry, in a statement, condemned "obsessional discrimination against Israel on the part of the United Nations and its agencies" to justify the cut in funding.
Prime Minister Benjamin Netanyahu "decided to allocate the two million dollars to international aid and to investment in developing countries which support Israel in international bodies", it said.
The Jewish state had already cut $6 million from its contribution of $11.7 million following a UN Security Council resolution passed in December condemning Israel's settlement building in the occupied Palestinian territories, a foreign ministry spokesman said.
Last week, a United Nations rights expert issued a blistering criticism of Israel's policies, deepening a row over alleged anti-Israel bias within the UN following US pressure.
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In a report, the UN special rapporteur on the Palestinian territories, Michael Lynk, charged Israel with "the subjugation of (Palestinians') humanity" and intensifying a crackdown on human rights campaigners.
Lynk made the claims in a report presented to the UN rights council during the Geneva-based body's mandated session on Israel, known as Agenda Item Seven.
Israel is the only country targeted with a dedicated rights council agenda item.
The Jewish state and its supporters, notably in Washington, have repeatedly accused the council of disproportionately targeting Israel.
US Secretary of State Rex Tillerson has publicly threatened to withdraw from the council over its "biased agenda item against Israel".