Armed Israeli police last night tried to halt the opening night of a prominent Palestinian literary festival in Jerusalem when they ordered a Palestinian theatre to close.

The week-long festival, supported by the British council and Unesco, has brought several high-profile international authors – among them Henning Mankell, Michael Palin and Ahdaf Soueif – on a speaking tour of Jerusalem and the West Bank.

Shortly before the opening event was due to begin, a squad of around a dozen Israeli border police walked into the Palestinian National Theatre, in East Jerusalem, and ordered it to be closed.

Police brought a letter from the Israeli minister of internal security which said the event could not be held because it was a political activity connected to the Palestinian Authority.

Members of the audience and the eight speakers were ordered to leave, but the event was held several minutes later, on a smaller scale, in the garden of the nearby French Cultural Centre.

Israeli police were deployed on the street outside.

"We're so taken aback. It's is completely, completely independent," Egyptian novelist Soueif, who is chairing the Palestine Festival of Literature, said.

"I think it's very telling," she told the crowd at the French centre. "Our motto, which is taken from the late Edward Said, is to pit the power of culture against the culture of power."

Israel regularly prevents political Palestinian events in East Jerusalem, but has recently also started to clamp down on cultural events in an apparent attempt to extend control over the city.

The development comes at a time of growing international concern over the Israeli government's demolition of Palestinian homes and the continued growth of Jewish settlements in East Jerusalem.

In March, the Israeli authorities banned a series of Palestinian cultural events in Jerusalem, including a children's march, intended to mark the Arab League's designation of Jerusalem as the capital of Arab culture for this year.

Israel said the events breached its ban on Palestinian political activity.

Earlier this month, Israeli police closed down a Palestinian press centre that had been established in East Jerusalem for the visit of Pope Benedict XVI.

Israel captured East Jerusalem in the 1967 war and later annexed it – a move not recognised by the international community.

Mankell, a Swedish crime novelist, told the crowd at Saturday's event: "Don't lose hope."

He compared the raid to life in South Africa under apartheid and added: "What really makes us human beings is our capacity for dialogue.

"The only way we can save ourselves finally in the end is the capacity for making dialogue with each other."

The festival will stage events in the West Bank cities of Ramallah, Bethlehem, Hebron and Jenin this week before returning to the same Palestinian theatre in East Jerusalem on Thursday night for a final event, although that also appears at risk of being closed.

Micky Rosenfeld, an Israeli police spokesman, said the event was closed down because Israel believed it was organised or funded by the Palestinian Authority.

Rosenfeld said a signed order had been handed over by police.

"This is the policy being implemented with regard to any events which are either organised or funded by the Palestinian Authority in Jerusalem," he said.

He added that previous Palestinian events in the city, including the press centre for the pope, had been closed under the same policy.

However, Rafiq Husseini, the chief of staff to the Palestinian president, Mahmoud Abbas, who was in last night's audience, was dismissive of the Israeli actions.

"It shows how the Israelis are not thinking, he said. "This is a cultural event. There is no terrorism, there is nobody shooting. It's just a cultural event.

"They are creating enemies for themselves."