Health and Human Services Secretary Kathleen Sebelius announced the decision in Houston on Friday, prompting a furious response from Texas Governor Rick Perry, who called it an "egregious federal overreach."

At the heart of the dispute between the administration of President Barack Obama and Texas is the divisive issue of abortion.

The Texas legislature last year voted to cut off funding for Planned Parenthood because the network of women's health clinics performs abortions. The federal government says that this violates rules of Medicaid, the health program for the poor.

Some 130,000 low-income Texas women who get free exams and contraceptives through Medicaid could lose those benefits as a result of the dispute.

The program provides free birth control and annual exams to women of reproductive age who do not qualify for the regular Medicaid program for the poor. The federal government pays 90 percent of the cost and Texas puts up about $4 million a year.

Wisconsin, North Carolina, Tennessee and Indiana all have joined Texas trying to block Planned Parenthood from receiving taxpayer money in the last year. Several other states, including Ohio, Oklahoma and New Hampshire, are considering similar moves.

While public funds do not pay for abortions, critics of Planned Parenthood argue that hiring the organization to provide family planning to poor women helps the organization stay afloat and thus indirectly supports abortion services.

The Texas funding cut prompted Planned Parenthood to shut down 11 clinics in the state.

Perry said the decision by the Obama administration was "politically motivated," and said it was an affront that Sebelius had not informed the state of Texas before announcing the move to the press.

A spokeswoman for Sebelius had no comment beyond confirming the decision to cut off funding to Texas.

The abortion fight is the latest of a string of disputes between Obama's Democratic administration and the Republican-dominated Texas state government. The two sparred last year over disaster aid for Texas after devastating wildfires and environmental regulations Texas opposes.

(Reporting by Corrie MacLaggan and Roberta Rampton; Additional reporting by Stephanie Simon; Writing by Greg McCune; Editing by Peter Bohan and Eric Beech)

• A Permanent Economic Emergency