The Palestinian Authority is losing legitimacy among its people because it is not creating a state, and as a result its institutions could "eventually collapse," the UN Middle East envoy has said.

"The Palestinian Authority is quickly, in my view, losing its legitimacy in the eye of the public, if it is not able to bring also the political goal forwards -- the creation of a Palestinian state which lives side by side with Israel in peace and security," Robert Serry said on Monday.

The UN Special Coordinator for the Middle East Peace Process was speaking to students at the Rishon Lezion College of Management near Tel Aviv.

He warned that economic growth in the Palestinian territories could not ensure stability without negotiations with Israel.

"Some think that a strong Palestinian economy will be enough to maintain stability in the West Bank, something that is both a Palestinian and an Israeli interest," he said.

"But economic growth alone will not assure a sustainable future," Serry noted, since "no political institution can survive if it rests only on economics and lacks political legitimacy."

"Without a political path that leads to the creation of a viable Palestinian state that lives side by side with Israel in peace and security, I'm afraid the Palestinian institutions will become unsustainable and eventually collapse.

"It is not all about money, on the contrary, it is mostly now, in my view, also about politics."

Direct peace talks between Israel and the Palestinians have been on hold since September 2010 following an intractable dispute over settlements, and efforts to bring the two sides closer together have so far led nowhere.