Palestinians say that 110 hectares of land will be seized.
Ahmed Qureia, a Palestinian negotiator, said: "Such measures will eliminate the possibility of establishing an independent Palestinian state and thus the possibility of a peaceful solution to the Israeli-Palestinian conflict."
Qureia urged Israel to alter its decision and called on the US to intervene to stop the building of the barrier.
Legal challenges
The 16km road will link Palestinian communities between Jericho and the edge of Jerusalem.
According to a government-approved route, the barrier is to cut deep into the West Bank in that area.
It is set to incorporate the Maaleh Adumim settlement of 30,000 residents, about 3km from Jerusalem, and outlying Jewish areas, meaning a total of 60sq km would be annexed.
A local resident who was served with an eviction notice told al Jazeera: "It's painful. Somebody takes the land from which you make your living and support your family."
The government's route is facing a number of challenges in Israeli courts.
Shlomo Lecker, an Israeli lawyer who is representing Palestinians in Israeli courts, told Al Jazeera that the building of the new road was a by-product of the barrier and that the government's plan threatened to split the West Bank.
Lecker said that if the land was annexed the West Bank would be divided in two.
Military checkpoints
Israel says the barrier is necessary to prevent Palestinian attacks.
Benny Kashriel, the mayor of Maaleh Adumim, said the proposed road was meant to ease the problems faced by Palestinians.
He said Palestinian motorists would eventually be able to drive from the southern to the northern West Bank without encountering any Israeli checkpoints.
The mayor denied charges that the road construction is indirectly linked to plans to expand Maaleh Adumim by building 3,500 more homes on the last stretch of empty West Bank land east of Jerusalem.
According to a recent UN report, an increasingly separate road system is being built by Israel in the West Bank.
About 1,660km of West Bank roads are for mainly for Israeli use, while Palestinian access is restricted by military checkpoints.