GAZA, March 3 (Reuters) - Banks in the Gaza Strip closed on Thursday in protest against Hamas's seizure of $250,000 in cash in a dispute between the Islamist movement that runs the enclave and its West Bank rival, the Palestinian Authority.

A banking official said Hamas police went to the Palestine Investment Bank on Wednesday and demanded the money from the account of the PA-backed Palestine Investment Fund, which Hamas alleged had been illegally transferring money out of Gaza.

The PIF said its withdrawals from the bank were legitimate.

(Hamas police) said unless they were given the money, they would take it by force, the official told Reuters. He said the police left with bags of cash filled with Israeli shekels worth $250,000 after several hours of discussion.

All banks closed their doors today to protest against Hamas's assault on the Palestine Investment Bank, said the official, who declined to be identified.

A West Bank official for the Palestinian Monetary Authority, which oversees banking in the Gaza Strip and the West Bank, said the Hamas police had committed armed robbery. In a statement, the monetary authority demanded the return of the cash.

Hamas seized control of Gaza in 2007 in a brief civil war with forces loyal to Palestinian President Mahmoud Abbas.

Egyptian efforts to reconcile the two adversaries have failed and the bank move could increase friction at a time when Abbas's allies had been pressing for a unity government.

(Reporting by Nidal al-Mughrabi, Writing by Jeffrey Heller in Jerusalem; Additional reporting by Mohammed Assadi in Ramallah; Editing by Andrew Dobbie)