Palestinian Authority ministers had met earlier on Tuesday to discuss ways of easing economic hardships as protests erupted across the West Bank this week against rising living costs.
Civil servants will receive half of their August salaries, or a minimum of 2,000 shekels ($500), on Wednesday and will be paid the rest of their salaries later this week, Fayyad added.
The economic measures will also include cuts on expenses for PA ministries, with the exception of the health, education and social affairs departments.
All expenses such as rent, travel and exchange coupons will be cut, the Ramallah premier announced.
Fayyad condemned attacks on public property during the recent price protests and praised the role of the Palestinian security forces in facilitating demonstrations during a difficult time.
The crisis faced by the Palestinian Authority is a result of an accumulation of problems over the past two years due to a deficit in the PA's budget, the split between Hamas and Fatah, and the continued occupation of 60 percent of the West Bank by Israel's military, he added.
Frustrated by rising prices and high levels of unemployment, Palestinians took to the streets this week to protest the dire economic outlook.
PA premier Salam Fayyad, who also held the finance minister post until earlier this year, has emerged as a focus of the protests, but demonstrators have also demanded that the Paris Protocol agreement signed with Israel in 1994 be amended.
The Protocol gave Israel sole control over Palestine's external trade, and collection of customs duties, allowing the state to serially hold back this revenue as punishment for Palestinian political measures, such as the bid for UN membership.
It also pegs VAT to Israeli tax rates, currently at 17 percent, despite the huge disparity in average Palestinian and Israeli incomes.
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