In a new challenge to Israeli Prime Minister Ehud Barak, Jewish settlers established a new outpost in the West Bank before dawn on Tuesday.
They are protesting against the planned withdrawal of Israeli troops from the area.
The move has angered the Palestinians and provoked a tough stance from the Israeli government, who have threatened to use legal measures to oust the settlers.
Early on Tuesday Jewish settlers began building a new camp near the West Bank settlement of Nokdim.
A dozen young men from Dor Hahemsheh or the next generation, a radical settlers group that has clashed with traditional settler leaders over compromises on West Bank land, set up four tents and were building two rickety wooden shelters to claim the hilltop.
The youths were protesting a planned West Bank troop withdrawal, which was scheduled to have taken place last week, by building on the border of an area that was included in the withdrawal plan.
Five army jeeps arrived on the scene but did not intervene to stop them from building the settlements.
The move angered Palestinians, who asked the Israeli government to take immediate action.
"The settlers have often taken the law into their own hands, have often acted like a government within a government in Israel. These are becoming a very dangerous people, a very dangerous phenomena. And we urge the Israeli government to choose peace and not to choose to make deals with the settlers and at the same time we demand a full cessation of settlement activities and an immediate evacuation of these people outside the site."
And the response from the Israeli government was swift.
The minister for Jerusalem said the government would take decisive action against any groups that seek to derail the peace process.
"Illegal settlements will be evacuated, and I'm calling on those involved in those illegal steps to stop it, to evacuate this illegal settlement by themselves. Otherwise the state will act."
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Following talks with leaders of the mainstream YESHA council of settlers, Israeli foreign minister David Levy also urged the protesters to leave the site voluntarily.
The handover of another 5 percent of the West Bank to the Palestinians was postponed from November 15, when the Palestinians demanded control of more populated areas that link-up the territories they already control.
Israeli Prime Minister Ehud Barak has pledged not to allow land grabs by militants to dictate the terms of a final peace settlement for the future of the West Bank and Gaza Strip.
That settlement is currently being thrashed out by Israeli and Palestinian negotiators.