The wall cuts deep into the West Bank and is currently being built in the districts of Qalqiliya, Tulkarem, Jenin, Jerusalem and Bethlehem.
The Grand Mufti Ikeremah Sabri is quoted as saying that the barrier was illegal and therefore any financial gain from its construction would be immoral.
"The wall is built on stolen land and whatever is built on stolen land is illegal and the participation of anyone in building this wall - whether they are contractors or owners of heavy machinery – would be forbidden", he said.
Any Palestinian, he added, "participating in this is, from a religious point of view, committing a sin and his money is immoral".
Reacting to the fatwa, leading Israeli-based organisation, Rabbis for Human Rights, although understanding of Israel's claims for the wall's purpose, said the decree could be understood within context.
"I can certainly understand the call to not participate in something which people are basically building to create their own prison", said Rabbi Arik W Ascherman, who is Executive Director for the organisation.
Speaking to Aljazeera.net he said "it was not for me to judge one way or the other regarding Palestinians who choose to work there".
However, he added, "it is ironic that Palestinians are working there, on the wall and on settlements that violate their own human rights".
Palestinian labour surveys in 2002 put the unemployment rate at 38% in the West Bank and more than 46% in the Gaza Strip.
The wall, Rabbi Ascherman added, just creates additional problems, with travel to work and hospitals for medical care.
"We are not opposed to the wall," he stressed, "we are opposed to the root of the wall, which not only confiscates Palestinian land, but also causes land to be trapped between the Green Line and the wall".
"I can certainly understand the call to not participate in something which people are basically building to create their own prison"
Rabbi Arik W Ascherman
Executive Director, Rabbis for Human Rights
If the wall went along the Green Line only, he said, there would be no conflict.
"The root of the barrier, has created unnecessary conflict".
Farmers, whose land has been divided because of the wall, have welcomed the fatwa by Mufti Sabri.
"We are very happy (with the fawa) because the wall has affected our daily means of living", Muhammad Uthman Sahaminh, a farmer living in Jayous, a West Bank village told Aljazeera.net.
"The wall means we cannot work on our own land".
The wall prevents Palestinian
farmers from working on their land
"Because of the wall, I can see my fields, but cannot work in my fields. They (the Israelis) don't give me permission".
He said neighbouring farmers share his views and hope the Palestinian workers would abide by the fatwa.
Israel has defended the building of the wall, which reaches 8m high in parts and is bordered by trenches.
The wall, according to the Stop the Wall campaign "will de facto annex some 50% of the West Bank, isolating communities into cantons, enclaves and military zones.
Israel has declared that the wall, which will eventually be 650 km long, will be completed by 2005.