An Arab group at the United Nations appealed on Thursday to the UN security council to stop the excavation work.
In a statement, Arab ambassadors asked the Security Council "to take immediate and urgent measures to put an end to Israeli violations and to guarantee its respect for international law and security council resolutions".
They said in a statement they "denounced the Israeli occupation authority's escalation of its aggression on Islamic endowments in occupied East Jerusalem by starting to destroy a historic route."
Saudi Arabia, the birthplace of Islam, has condemned the Israeli excavations as a provocation to Muslims.
"[Saudi Arabia] appeals to the world community to intervene resolutely to stop this Israeli aggression and confront these actions that aim to tamper with the religious identity of Jerusalem ... and are a provocation to Muslims around the world," Saudi officials said in a statement.
Israeli officials have said some Muslim commentators are using the renovation work as a pretext to stoke anger against Israel.
Speaking during a visit to Spain on Thursday, Tzipi Livni, Israel's foreign minister, accused "political extremists" of trying to "exploit this situation".
Muslims believe the compound, home to the golden-capped Dome of the Rock shrine and al-Aqsa mosque, is where the Prophet Muhammad ascended to heaven.
Israel has controlled the compound since the 1967 Mideast War, but has left its administration largely to the Jordanian-controlled Waqf trust and the Palestinians.