Attorney General Ahmed Barak said the recently published "Crime in Ramallah" contained "indecent texts and terms that threaten morality and public decency, which could affect the population, in particular minors".
He insisted the decision "does not violate freedom of opinion and expression".
Abbad Yahya's novel contains several pages with explicit sexual content, including masturbation by the main character, a man.
Speaking by phone as he said he was abroad, the author said he had been summoned for questioning.
His editor, Fuad al-Aklik, was arrested on Monday and released on Tuesday morning after interrogation, Yahya added.
"The police seized all copies in bookshops from Jenin to Hebron" across the West Bank, the writer said.
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He said a human rights organisation had told him "summoning an author for a novel was an unprecedented decision".
Yahya's Facebook page was covered with messages of support.
"What shocks me is the speed with which this decision was taken and the arrest of the editor" Aklik, he said.
Yahya doubted the authorities had even read the whole book, his fourth novel.
Palestinian culture minister Ehab Bseiso wrote on his personal Facebook page he wanted to read the book.
The cultural section of the Palestine Liberation Organisation denounced the "unjustified" decision that "opens the door to abuses of brutal censorship".