Lieutenant Adam Avidan, the Israeli occupation army civil administration's spokesman, said on Tuesday that Modiin Eilit - a large settlement on the Israel-West Bank frontier - had been ordered last week by the civil administration to stop the construction, but had failed to do so.
The administration is trying to determine who owns the land, but it appears that the settlement has been building homes on private Palestinian lands, Avidan said.
"Now that we understand that the construction is continuing, we will consider all the options that we have in order ... to impose law and order and halt the illegal construction," Avidan said.
The civil administration, the branch of the army that deals with civil affairs in the West Bank, granted Modiin Eilit construction permits to build 1500 housing units on what Israel considers state lands, Avidan said.
"We will consider all the options that we have in order ... to impose law and order and halt the illegal construction"
Adam Avidan, spokesman, Israeli army civil administration
However, the regional council went ahead with its own plans to build more homes, he said.
The Israeli daily Haaretz reported that the land belonged to Palestinian residents of the neighbouring village of Bilin.
The Israeli authorities have been turning a blind eye to a vast project of illegal expansion in Modiin Eilit, the newspaper said.
The government had admitted to the supreme court that a number of the 750 homes built were illegal, but asked the body to recognise that as an accomplished fact, it said.
The settlement pushed ahead with its development because Israel is building its West Bank barrier between Modiin Eilit and Bilin, and the Jewish community wanted to enlarge its boundaries before the wall is completed, Haaretz reported.
Hebron settlers pelted Israeli
forces with eggs and chemicals
Ariel Sharon, the prime minister, has said he plans to hold on to large West Bank settlement blocs, such as Modiin Eilit, under a final peace deal with the Palestinians.
Bilin has been the scene of weekly demonstrations against Israel's separation barrier being built in the West Bank. The structure cuts off the village from land destined to serve for the expansion of Modiin Eilit.
The international community says Jewish settlements in the occupied Palestinian territories are illegal, whether they have been approved by the Israeli government or not.
Evicted settlers attack
Meanwhile on Tuesday, Jewish settlers set fire to a Palestinian house and threw eggs and chemicals at Israeli soldiers after eight settler families were ordered to leave a market area they took over four years ago, Israeli officials said.
The violence broke out when police tried to distribute eviction notices giving the squatters two weeks to leave the area.
Avidan, the spokesman for the army's civil administration, said: "If they refuse to leave, the army will remove them by force.
"If they (Jewish settlers) refuse to leave, the army will remove them by force... The order ends any chance of them being able to live there legally. I don't think they will be able to return there in the future"
"The order ends any chance of them being able to live there legally. I don't think they will be able to return there in the future."
Israeli police spokesman Micky Rosenfeld said several civilians threw eggs at police and soldiers distributing the notices.
One policeman was hit by a liquid that caused burning in his eyes. The officer was hospitalised with light wounds.
Later, settlers set fire to a Palestinian house, Rosenfeld said. Seven settlers were detained for questioning, he added.
The settlers moved into the market area in 2001 after Palestinian fighters killed Shalhevet Pass, a 10-month-old baby, while her father was standing outside his home in Hebron's Jewish settlement.
About 500 settlers live in heavily guarded Jewish enclaves in the heart of Hebron, home to more than 160,000 Palestinians.
The market area inhabited by the settlers was closed in 1994 after Jewish doctor Baruch Goldstein opened fire at the burial site of Abraham - a shrine holy to Jews and Muslims - killing 29 Palestinians, and never reopened.