The new legislation, signed off six months ago and due to be implemented on Tuesday, amends an existing order from 1969 to prevent infiltration into the country.
The military policy now stipulates that all Palestinians in the occupied West Banknot carrying what Israel deems a valid identity card can be classified as "infiltrators", and as such, could face deportation or up to seven years in prison.
The Israeli military order does not specify what would be accepted as valid identification.
Rights groups have also criticised the order, saying it has sparked fear of arrest amongst Palestinians.
Sari Bashi, the executive director of the Gisha Legal Centre for Freedom of Movement, an Israeli civil liberties group in Tel Aviv, said the order gives a green light to Israeli soldiers to arrest Palestinians.
"This is part of a series of steps implemented by Israel to empty the West Bank of Palestinians, especially by removing them to Gaza," she told Al Jazeera.
"There are tens of thousands of people at risk, who pose no security threat whatsoever - they're just trying to lead their lives.
"Turning them into criminals - making it criminal for them to be present in their own home - is tearing away at the fabric of life in the West Bank."
"There is no protection here - the opposite, for the first time the military is declaring it a crime for a Palestinian resident to be present in one part of the Palestinian territory."
But Israel has defended the policy.
Mark Regev, a spokesman for the Israeli government, denied that the amended measure was aimed at expelling Palestinians, and said it would safeguard their rights.
Israeli columnist assesses new policy that could result in tens of thousands of evictions
"What we've done here is we've strengthened the rights of people who face such deportation by creating ... an independent judicial oversight mechanism, which makes sure there are checks and balances and that the legal rights of people are protected," he told Al Jazeera.
Under the old order, those served with deportation orders could be deported the same day, whereas the new amendments provide a 72-hour appeal period, he said.
The controversial aspect of the measure, however, arises from the vague language now used to define an infiltrator, as reported by Israel's Haaretz newspaper on Sunday.
"The order's language is both general and ambiguous, stipulating that the term infiltrator will also be applied to Palestinian residents of Jerusalem, citizens of countries with which Israel has friendly ties [such as the United States] and Israeli citizens, whether Arab or Jewish," Haaretz said.
"All this depends on the judgement of Israel defence forces commanders in the field."