Palestinian Prime Minister Salam Fayyad has begun to act on a plan to shrink the security forces by about a third, a move that may fuel tensions in the Fatah faction that runs the Palestinian Authority.

Diplomats said the goals of the Western-backed plan were to save money in the long term and produce a smaller, more tightly controlled force -- a better armed and trained gendarmerie that can both police civilians and prevent heavily armed militant groups from jeopardising peace agreements with Israel.

But overhauling the security forces could place Fayyad, an independent technocrat, on a collision course with Fatah's powerful old-guard. To cushion the blow, the former IMF economist is drawing up plans for generous incentives to retire.

Cutting the security payroll will eventually produce budget savings but providing large severance packages and new training could cost hundreds of millions of dollars at a time when Fayyad is already facing a $1.6 billion budget gap, diplomats said.

Fayyad was appointed by President Mahmoud Abbas after Hamas Islamists seized the Gaza Strip in June -- an upset that exposed a security apparatus marked by nepotism and recruitment aimed more at easing unemployment than building a professional force.

But it is unclear how much support Fayyad has within Fatah, which still dominates the Israeli-occupied West Bank.

"He's taking a lot of risks," said Zakaria Al Qaq of Al Quds University. "He doesn't have a clan. He doesn't have a political base. He doesn't have Fatah. He has Salam Fayyad."

Senior Fatah official Abu Ali Shaheen acknowledged some resentment within Fatah but insisted the prime minister "has credibility" and had the support of a majority in the faction.

The security plan envisages cutting Abbas's Palestinian Authority security forces to about 50,000 members, down from a peak of around 83,000, Palestinian and Western officials said.

Aides to Fayyad confirmed the prime minister's goal was to shed 30,000 security personnel -- a process already under way.

Fayyad's interior minister, Abdel-Razzak Yahya, said specific job reductions have yet to be decided. "We will begin next year to restructure the various security forces," he said.

A senior Western diplomat said the 50,000 goal was deemed "appropriate and sustainable" based on the size and population of the West Bank and Gaza Strip. The figure was based loosely on the ratio of forces to civilians in neighbouring Jordan.

Abbas's advisers started working on the security overhaul plan long before Fayyad's government was formed but preparations have accelerated ahead of a US-sponsored conference on Palestinian statehood and a donors' meeting later this year.

A handful of diplomats and officials involved in those sensitive preparations all spoke on condition of anonymity.

Following Hamas's takeover of Gaza, Fayyad's government stopped paying about 23,500 security personnel, arguing their appointments by previous governments had been illegal. An International Monetary Fund report said Fayyad intended to remove 20,000 of these employees from the payroll permanently.

The move has sparked a backlash: "Hamas is chasing us and Fayyad is starving our children," said Nimir Ahmed-Hassan, a Fatah security man in Gaza who has not been paid since June.

Fayyad's government has set up medical boards to review the the security workforce to weed out those who fail tests. Other panels are trying to find those who receive double payments.

"The security services are undergoing a screening process for fitness to serve," Fayyad said. A senior aide to the prime minister added: "Those unfit to serve will be removed".

As part of Fayyad's security overhaul, Fayyad has started phasing out Force 17, a much talked-about unit that protected the late leader Yasser Arafat but was accused by Israel and US lawmakers of taking part in viol