"Nobody has opened an embassy in Ramallah, and we think that this can be managed by the consulate in Jerusalem, which is a satisfactory solution for us," Foreign Minister Margot Wallström told Sveriges Radio.
Sweden officially recognised the state of Palestine last month, a move that infuriated Israel which responded by recalling its ambassador to Stockholm.
Palestinian president Mahmud Abbas, whose headquarters are in the West Bank city of Ramallah, hailed Sweden's recognition as "courageous and historic".
Palestinians want east Jerusalem as the capital of a future state.
Israel protests Palestine recognition
The UN General Assembly approved the recognition of Palestine as a sovereign state in 2012, but the European Union and most western countries do not refer to Palestine as a separate state.
Speaking at a press conference in October, Margot Wallström said:
"We are not picking sides. We're choosing the side of the peace process".
She added: "The government believes that the international law criteria for the recognition of the State of Palestine has been met. There is a territory, there is a population and there is a government".