Israel's Foreign Minister Avigdor Lieberman called for Israel's borders to be redrawn to exclude some Palestinian citizens, the Associated Press reported Sunday.

Speaking ahead of the weekly cabinet meeting, Lieberman proposed a shift in the principle of peace talks, which he said "must not be land for peace, but an exchange of land and people," AP said.

The border should be redrawn, Lieberman explained, so Israel's Arab citizens, who make up 20 percent of the country's population, would be on the Palestinian side, while Jewish settlements would be incorporated into Israel.

The foreign minister said citizenship should be a central issue in peace talks "in light of the Palestinian refusal to recognize Israel as a Jewish state," Lieberman was quoted as saying in the Israeli daily Haaretz.

The foreign minister explained "It's as if someone sells you a flat and then demands that his mother-in-law continues living there," Haaretz said.

Palestinian negotiators have recognized Israel's right to exist, but not as a Jewish state, which officials said would prejudice the right of return for refugees and violate the rights of Israel's non-Jewish residents.

Palestinian National Initiative leader Mustafa Barghouthi said the demand that Palestinians recognized Israel as a Jewish state was an attempt to legitimize the ethnic cleansing of 1948, and that Lieberman's "racist" proposal, which he described as "another stage of ethnic cleansing."

The PNI leader said Lieberman's comments were timed to provoke Palestinians into withdrawing from talks. Barghouthi noted that several high-level Israeli ministers have made provocative statements, which he said were attempts to destroy the peace process in such a way that Palestinians would be held responsible for the collapse of talks.

Lieberman's resuscitation of his "population transfer" plan, first unveiled several years ago, comes at a fragile time in peace negotiations, as Netanyahu refuses to extend a partial freeze in settlement building on occupied land, despite international pressure. President Mahmoud Abbas has threatened to withdraw from talks over the issue.

"No loyalty, no citizenship" was the campaigning slogan of Lieberman's right wing Yisrael Beiteinu party, and the Soviet-born foreign minister has proposed a series of loyalty laws targeting the Palestinian minority.