Israel is forcing Palestinians out of East Jerusalem as part of a deliberate policy that might constitute a war crime, a prominent Israeli non-governmental organisation said on Monday, a charge rejected by Jerusalem's mayor.

The Israeli Committee Against House Demolitions (ICAHD) has presented the United Nations with its findings and demanded an inquiry, saying Israel targeted Palestinians by demolishing homes, revoking residency and eroding quality of life.

"We are witnessing a process of ethnic displacement," said Michael Sfard, a lawyer who helped draw up a 73-page report into the issue. "Israel is manifestly and seriously violating international law ... and the motivation is demographic."

Stephan Miller, a spokesman for Israel's mayor of Jerusalem, Nir Barkat, dismissed the report. He said in a statement it was based on "misleading facts, blatant lies and political spin about Jerusalem, so I'm sure the UN will enjoy it."

Israel seized East Jerusalem, including the Old City, in the 1967 Middle East war. It later annexed the area and surrounding West Bank villages into a Jerusalem municipality that it declared the united and eternal capital of Israel.

Palestinians want East Jerusalem as the capital of a future state and world powers have not recognised the annexation.

There are some 300,000 Palestinians residents in East Jerusalem, representing about 35 percent of the city's total population, but ICAHD said that since Israel took control of largely Arab areas it had systematically prevented their development.

One third of land in East Jerusalem was taken for the construction of Jewish neighbourhoods, while only nine percent of the remaining land is legally available for housing. This has all been built on, making expansion impossible.

ICAHD said it was virtually impossible for Palestinians to obtain building permits to house their growing families.

"They have no other option than to leave East Jerusalem, build illegally or live in appalling, cramped conditions," said Emily Schaeffer, who authored the report.

DEMOLITIONS AND RESIDENCY

Those who leave lose residency rights if they are gone for seven or more years and cannot return. Some 14,000 Palestinians lost their residency between 1967 and 2010, with half of those revocations taking place after 2006, ICAHD said.

Residency entitles you to Israeli health care and national insurance benefits.

Those who built houses illegally, lived in fear of having their property demolished and also faced hefty fines.

Israel demolished more than 2,000 homes in East Jerusalem since 1967, with 771 being pulled down between 2000-2011. A further 1,500 demolition orders are pending execution.

"Palestinians will de facto be deported from East Jerusalem, not by using guns or trucks, but by not allowing them to live a decent, normal life," Sfard said.

Because the annexation of East Jerusalem was not recognised, Palestinians living there should be considered as a people under occupation, ICAHD said. As such, Israel had no right to strip them of residency or demolish their homes.

"There is a suspicion that a war crime is taking place and that is why an investigation should take place," said Sfard.

A statement from the Israeli mayor's office which said that while East Jerusalem had suffered from a lack of investment in the past that had now changed.

It said Barkat had "invested an unprecedented amount of resources and efforts to improve the quality of life of Muslim residents of Jerusalem after decades of neglect by previous administrations."

Miller, the mayor's spokesman, added that Barkat was "committed to improving the quality of life of Jerusalem's Muslim residents and he will continue to do so."

Supporters of the mayor pointed to a poll released this year by the Palestinian Center for Public Opinion.

Asked if they would prefer to be citizens of a future Palestinian state or of Israel, 35 percent of those questioned plumped for Israeli citizenship, 30 percent said they would choose Palestinian citizenship and 35 percent gave no answer.

The vast majority of Palestinian East Jerusalemites rejected offers of Israeli citizenship following the 1967 war, fearing it would undermine Palestinian claims to the area, but most have Israeli residency status.