No work has been done on the site since the infrastructure was put in place in 1997.

The initial work sparked fierce Palestinian demonstrations throughout the West Bank and Gaza Strip and a 19-month breakdown in the peace process.

According to politicians, the timing of the new phase of construction - which involves work on building 150 new houses - had nothing to do with the polls.

Announcing the start of digging, Housing Ministry spokesman Moshe Eilat, said "this was a decision of the companies, not the Israeli Government, and has nothing to do with the elections."

Contractors have also denied that the companies had been asked to restart the work by the government.

But Palestinians have accused the incumbent Prime Minister Binyamin Netanyahu of speeding up development to draw right-wing voters in Monday's elections.

"This is Mr Netanyahu's determination to destroy the peace process," said Palestinian negotiator Saeb Erekat.

Labour leader Ehud Barak, favourite to become prime minister in Monday's elections, has not said he would stop the building at the site, but is considered more likely to continue the peace process than Mr Netanyahu.

The Palestinians want to establish the capital of a future independent state in east Jerusalem, territory which Israel captured from Jordan in the 1967 Six Day War and later annexed.