"Israel forces have entered the camp," one of the protest organisers, Abir Copty confirmed to AFP.
About 200 Palestinian activists set up the camp, named Bab al-Shams (Gate of the Sun in Arabic), on Friday in the controversial E1 area between Israeli annexed east Jerusalem and the settlement of Maaleh Adumim.
The protesters had defied Israeli orders to leave until police backed by bulldozers moved in at around 2.30 am (0030 GMT).
"Hundreds of Israeli police came from all directions, surrounding all those who were in the tents and arresting them one by one," Palestinian legislator Mustafa Barghouti told AFP.
But police spokesman Micky Rosenfeld told AFP that no arrests had been made.
"They were told they were trespassing and carefully escorted from the site one by one," he said. "Nobody was hurt on either side."
About 500 police took part in the operation, he added.
Prime Minister Benjamin Netanyahu's office had said on Saturday night that he wanted the protesters removed at once and that state lawyers were asking the Israeli supreme court to overturn an injuction postponing the eviction issued Friday.
The Palestinians modelled their action on the wildcat outposts that Jewish settler activists have set up on Palestinian land to try to force the government's hand into authorising settlements.
"It's nice to build a village here without Israeli permission. We are here to stay," one activist from Ramallah told AFP on Saturday afternoon on condition of anonymity.
"This is a new type of resistance, different to armed resistance or stone-throwing," Omar Ghassan, 27, from Ramallah told AFP.
The international community regards all Jewish settlements on occupied Palestinian land as illegal. The Israeli government makes a distinction between those it has authorised and those it has not, though it sometimes approves the latter.