In a press release issued Monday, the company said the decision would affect some 200 Airbnb listings.
"We are most certainly not the experts when it comes to the historical disputes in this region. Our team has wrestled with this issue and we have struggled to come up with the right approach," the statement said.
"We concluded that we should remove listings in Israeli settlements in the occupied West Bank that are at the core of the dispute between Israelis and Palestinians."
Airbnb did not say when the listings would be removed.
PLO Secretary-General Saeb Erekat called the decision to remove the listings "an initial positive step."
"Israeli settlements are not just an obstacle to peace but defy the very definition of peace," Erekat said in a statement.
Palestinian leaders had called on Airbnb to remove the listings in Israeli settlements nearly three years ago, saying in a letter to the company that "Airbnb is effectively promoting the illegal colonization of occupied land."
Israeli leaders slammed the decision and called on Airbnb to reverse it. "This was a disgraceful and miserable decision and a disgraceful surrender by the company," said Tourism Minister Yariv Levin.
Levin instructed his ministry to implement measures to limit Airbnb's activity in Israel, while also creating a program to promote tourism and accommodation in rentals in West Bank settlements.
Human rights organizations hailed the decision as a positive step by the company.
Omar Shakir, Israel and Palestine director for Human Rights Watch, said in a statement: "Airbnb's decision to end its listings in Israeli settlements is an important recognition that such listings can't square with its human rights responsibilities. We urge other companies to follow suit."
Israeli settlements in the West Bank and East Jerusalem are considered a violation under international law, as reaffirmed in UN Security Council resolution 2334, as well as one of the primary obstacles to peace. Israel disputes this and insists the status of the West Bank is more ambiguous under international law.
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