Hundreds of Israeli police for the second time dismantled a Palestinian protest encampment on the outskirts of Jerusalem overnight, activists and police said on Sunday.

Activists set up the camp, known as Bab al-Shams, on a patch of land known as E1 which lies between east Jerusalem and the West Bank settlement of Maale Adumim in a bid to draw attention to controversial Israeli plans to build there.

Tents were pitched on Wednesday to highlight the issue at the start of a landmark three-day visit to Israel and the Palestinian territories by US President Barack Obama -- his first since taking office more than four years ago.

Palestinian legislator Mustafa Barghouti, one of the organisers, told AFP by phone that he and four others had been arrested and taken for questioning at Maale Adumim police station. Police said they were later released on bail.

He said about 50 other protesters were put on buses and released in a Palestinian Authority-controlled part of the West Bank.

"Sixty army and police vehicles and two helicopters" were deployed, Barghouti said, and added that security forces "attacked us with truncheons."

Police spokesman Micky Rosenfeld said one woman was arrested for allegedly assaulting a policeman.

"Over 200 officers took part in the operation," he told AFP. "The area was cleared in about half an hour."

The camp was first set up in January but taken down by court order on the grounds of "public disorder."

Similar encampments have sprouted elsewhere but have been quickly razed by troops or police.

The Palestinians say settlement construction in E1 would effectively cut the West Bank in two and prevent the creation of a contiguous Palestinian state.

"The settlers in E1 will destroy the idea of an independent Palestinian state, which will end once the West Bank is cut in two," Barghouti said.

The international community has reacted with consternation at Israeli plans to build in E1, urging Prime Minister Benjamin Netanyahu's government to reconsider.