Tuesday's decision comes after Palestinian residents of Kfar Saffa, some 15km west of Ram Allah, appealed to the court against construction of the barrier on land belonging to the village, Israeli army radio reported.
Earlier, six Israeli border policemen were slightly injured in Kfar Saffa during scuffles with Palestinians and peace activists who were demonstrating against ongoing construction in the area.
The protest was broken up when the border police used tear gas and sound bombs to disperse the demonstrators, Israeli radio said.
The Supreme Court has also ordered the Defence Ministry to explain its position on the possible freezing of construction in another nearby area, following an appeal by residents of the Har Adar Jewish settlement, some 15km northwest of Jerusalem.
Palestinian residents have been
appealing to the courts
Following completion of the vast construction project, Har Adar will be included on the "Israeli" side of the barrier, but residents have complained that the revised route, which was approved by the cabinet on Sunday, runs too close to their homes.
The court ordered the ministry to explain within a month what the security considerations were in respect to building the wall in the area, the radio said.
In Sunday's vote, the cabinet approved a modified route for the barrier which brings it closer to the internationally recognised border with the West Bank.
Israel says the separation wall is crucial to its security, but Palestinians see it as little more than a crude attempt to grab their land and foil the creation of a viable Palestinian state.