The head of the Islamic Movement inside the Green Line, Shaikh Raed Salah, said on Tuesday that Israelis are building a synagogue 97 metres away from the Dome of Rock as part of the ongoing excavation work under al-Aqsa mosque.
Separately, Ikrema Sabri, the top Muslim cleric in the Holy Land, called on Israel to halt work on the archaeological project near the holy site, saying continuing the dig will inflame tensions in the region, Aljazeera reported.
Israeli authorities recently unveiled an underground site that they say strengthens Jewish ties to the hilltop compound revered by Muslims as Haram al-Sharif, or the Noble Sanctuary.
The compound currently houses al-Aqsa mosque and Dome of the Rock mosques and is revered by Muslims as the place where Prophet Muhammad ascended to heaven.
Salah called the excavations a "black stain" on Israel and accused the government of plotting to destroy the mosques to build a new Jewish temple.
"You are inviting an uprising against you just to stop your attack on the mosque," he said.
Israel has conducted archaeological digs near the compound since it captured the Old City of Jerusalem in the 1967 Middle East War.
Raed Salah: The excavations are
a black stain on Israel
The digs infuriate the Palestinians and the Islamic Trust that oversees the mosque complex.
The competing claims to the site have often acted as a catalyst for Israeli-Palestinian fighting.
In September, Israelis unveiled a tourist centre at the underground site near the compound that they said detailed the Jewish connection to the site.
Sabri called the archaeological project an "aggression" that threatened the mosque compound and demanded an immediate end to the digs.
"These violations and aggression lead to tension in the region," he said on Tuesday.
In 1996, Palestinians rioted after Israel opened an archaeological tunnel alongside the compound.
Eighty people were killed in the violence.
In September 2000, then-opposition leader Ariel Sharon visited the mosque compound.
Jewish extremists have planned
several times to attack al-Aqsa
The next day, violence erupted in the West Bank and Gaza Strip, evolving into a nearly five-year Palestinian uprising that killed more than 3500 people on the Palestinian side and more than 1000 people on the Israeli side.
Sabri and other local Muslim leaders also accused Israel of opening a synagogue in the newly opened site, which they considered a challenge to their own claims to the compound.
No new synanogue
Rabbi Shmuel Rabinovitch, the chief rabbi of the Western Wall, said there was no new synagogue at the site and the digs did not go into the compound.
Israel has repeatedly denied any plans to damage the mosques and has stopped several attempts by Jewish extremists to destroy the shrines.
"The third temple will not be built by people. As we know in the Jewish faith it will be built by God," Rabinovitch said.