He said: "I appeal to all our Palestinian people to be united and to rise up together to protect al-Aqsa and the holy sites on the blessed land of Palestine."
The excavation work, just outside the site known as the Noble Sanctuary to Muslims and as the Temple Mount to Jews, is to ensure that renovation work to construct a pedestrian bridge to replace a ramp leading up to the complex does not damage any archaeological artifacts found at the site, officials said.
Part of the old stone walkway collapsed a few years ago, making it unsafe for people to use.
Gideon Avni, the director of excavations and surveys at Israel's Antiquities Authority, said: "The ramp itself is a very unstable area. It has been declared a dangerous area.
"There is no way on earth that the work can cause damage to the outer wall of the Temple Mount and absolutely not to any existing monument within the Temple Mount."
Aware that the work is likely to inflame tensions, Israeli police had already restricted access to the site, preventing tourists and Palestinian men under the age of 45 from entering.
Speaking earlier on Al Jazeera, Sheikh al-Tamini, a senior Muslim scholar and judge, called on Palestinians to head to al-Aqsa mosque to "protect" the site.
Muslims who went to the Old City to pray as an act of protest, found their way blocked by police so prayed outside the city gates.
'Volcano of anger'
Fatah, led by Mahmoud Abbas, the Palestinian president, said in a statement that any damage to the mosque would release Palestinian militant groups from a ceasefire with Israel in the Gaza Strip declared last November.
The governing Hamas movement, whose supporters held a rally in Gaza against the dig, said "any assault" on the mosque "will lead to a termination of the limited ceasefire" with Israel and would spark "a volcano of anger".
Ali Ayed, Jordan's ambassador to Israel, told state-run Petra news agency: "Jordan has informed Israel of its strong condemnation for the work being carried out by Israel in the Dung Gate area of al-Aqsa mosque.
"This protest and condemnation are based on the religious responsibility Jordan has over the Muslim holy sites in Jerusalem."
"... Muslims fear it is part of a plan by Israel to destroy the Islamic heritage of the old city"
Jacky Rowland, Al Jazeera correspondent
Tzipi Livni, the Israeli foreign minister, said: "The activities being carried out do not harm ... and will not harm any of the holy places."
She accused Israel's enemies of exploiting "every opportunity to stir the most radical emotions".
In 1996, work to open tunnels nearby sparked clashes which killed 80 people.
The compound is where the second Palestinian uprising erupted in September 2000 following a controversial visit by Israel's then-opposition leader, Ariel Sharon.
The site is also revered by Jews as once the site of Solomon's temple, the holiest shrine in Judaism, destroyed by the Romans in 70AD.
In January 2007, Israel revealed a project to set up a synagogue next to the al-Aqsa mosque's Dome of the Rock.
In February 2004, excavation works carried out by Israeli authorities led to the collapse of a part of the path leading to al-Maghareba Gate, one of the mosque's main entrances.
The Israeli government has been conducting exploratory excavation works underneath the al-Aqsa mosque since 1969.
Jacky Rowland, Al Jazeera's correspondent in Jerusalem, said: "The Israelis call this a salvage excavation. They say they will preserve whatever archeological remains are uncovered. But Muslims fear it is part of a plan by Israel to destroy the Islamic heritage of the old city."