Sweden donates 700 million kronor ($107 million) annually to the West Bank and Gaza. Carlsson told Sveriges Radio (SR) that the government is now considering cutting the 200 million kronor earmarked for social development.
Carlsson said that the premise of Swedish development assistance for the West Bank and Gaza has been to strengthen the Palestinians' position in negotiations for a two-state solution that could lead to peace with the Israelis.
She suggested that money targeted at capacity building is going to waste since neither the Palestinians nor the Israelis are willing to participate in peace negotiations.
Carlsson asked: "Is it worth continuing developing the prerequisites for a two-state solution if Israel and the Palestinians themselves do not want to sit down at the negotiating table?"
"I don't want to haggle with Swedish aid money, but I can only take the perspective of the Swedish taxpayer. One wants results. And if there are no chances of results, then we must take the consequences of that," Carlsson said.
The Social Democrats condemned the proposal and the Left Party called it a "provocation".
"To drop the Palestinians in the way that the government is now considering doing is wrong," said the Social Democrats' aid policy spokesman Kenneth G Forslund.
The Left Party's aid policy spokesman Hans Linde argued that Carlsson's suggestion is "absolutely the wrong way to go" and added that Sweden should actually increase humanitarian aid and support for Palestinian state building.
"Because of Israel's occupation we can see how the needs for foreign support and development assistance in the Palestinian territories actually grows," said Linde.
Carlsson's comments came just after her return from a three-day visit to the Palestinian territories and Israel.
She met local politicians, civil society actors and representatives of international organizations to discuss Sweden's involvement in the peace process and support for the Palestinians.