Israel says the houses were built illegally and without permits.
Palestinians say its difficult to obtain building permits in Arab neighbourhoods, prompting them to build illegally.
Palestinians held Friday prayers in the neighbourhood to denounce the planned Israeli demolition.
Authorities in Jerusalem said on Tuesday they had no immediate plans to evict the Palestinians from Silwan or demolish any homes, but Nir Barkat, the mayor of Jerusalem, confirmed that the area had been designated for a park.
Israel claims all of Jerusalem as its capital and has annexed the Arab east of the city. Some 500,000 Israelis live there in settlements.
Under international law, east Jerusalem is considered to be occupied and the city has not been recognised by world powers as the Israeli capital.
According to B'Tselem, the Israeli human rights organisation, Israeli authorities have demolished about 350 houses in east Jerusalem since 2004, saying that they were built without permits.