Uzi Cohen, a member of Ariel Sharon's right-wing party and a deputy mayor of the town of Raanana, told Israeli public radio on Sunday there was widespread support in Israel for "the idea of ethnic cleansing".
"Many people support the idea but few are willing to speak about it publicly," he said.
Cohen, an influential figure in Likud, proposed that Israel, the United States, the European Union as well as oil-rich Arab states make concerted efforts to create a Palestinian state in northern Jordan.
He suggested the Hashimi royal family in Amman "might view favorably this idea".
Cohen said Palestinians should be given 20 years to "leave voluntarily".
"In case they don't leave, plans would have to be drawn up to expel them by force."
'Israel's ugly face'
Cohen's racist ideas have drawn strong reactions from Palestinian leaders in Israel. Israeli Arab Knesset member Ahmad Taibi described Cohen as representing "Israel's ugly face".
MPs of Ariel Sharon's Likud party
discussed expelling Arabs before
"This man espouses Jewish fascism and he is trying to foster his venomous ideas, and I must say he is achieving remarkable success," Taibi told Aljazeera.net.
"The idea of ethnic cleansing is no longer confined to the far-right parties in Israel; many in the Likud support ethnic cleansing."
Taibi said tabling a racist proposal for discussion is in itself a grave development.
"It is not important what the result will be. The important thing is that they are going to dignify a fascist proposal like this by discussing it in a formal meeting."
Israeli leaders have lately been warning of an "encroaching Palestinian demographic threat".
On Friday, a leading Jewish demographer warned Jews were on the verge of becoming a minority in mandatory Palestine, the historic region administered by Britain until late 1947 from the River Jordan to the Mediterranean.
Israeli Prime Minister Ariel Sharon has so far been circumspect about the idea of banishing the Palestinians from their ancestral land.
Last year, when members of his Likud party approached him with the idea, Sharon reportedly told them: "The international situation wouldn't be conducive to expelling the Palestinians.
In 1948, the newly-born Jewish state expelled the bulk of the Palestinian population from what is now Israel and destroyed more than 460 Arab towns and villages.
Israel has consistently refused to allow the repatriation of the refugees, arguing that allowing some or all of them back to their homes, many of which no longer exist, would undermine the "Jewish identity" of Israel.