About 200 Palestinians, backed by foreign activists, started on the encampment, called Bab al-Shams -- "Gate of the Sun" -- early Friday, Ynetnews reported.
"We chose this specific area because it is conquered Palestinian land and places a wedge between the northern and southern parts of the West Bank," said Mahmoud Zawara of the Popular Palestinian Committees.
"I hope the encampment will be permanent and remain in the E1 area," he added.
Zawara said the group doesn't plan on confronting Israeli security forces, should they arrive at the site.
"We came here in the framework of non-violent resistance; we will not resort to any kind of violence," he said, adding, "According to international law, and even Israeli law, the Israeli army cannot prevent us from pitching tents."
Just more than a month ago, Israel approved plans for further construction in the E1 zone, which connects Jerusalem to Ma'ale Adumim. The move was in retaliation of the United Nations' recognition of Palestine as a non-member observer state and has been criticized by the United States and European countries.