Israel's control of a huge swath of the West Bank is costing the Palestinian economy $3.4bn (£2.1bn) a year, or 35% of its GDP, according to a report from the World Bank.

Restrictions on Palestinian access and movement within Area C, the 61% of the West Bank that is under full Israeli military control, is stunting the Palestinian economy, says the report. Area C and the Future of the Palestinian Economy, published on Tuesday, is the first comprehensive study of the potential impact of land restrictions in the region, according to the World Bank.

"Unleashing the potential from that 'restricted land' … and allowing Palestinians to put these resources to work, would provide whole new areas of economic activity and set the economy on the path to sustainable growth," said Mariam Sherman of the World Bank.

About 180,000 Palestinians, or 6.6% of the population, live in Area C, the report says. Most Palestinians live in Area A, which is under full Palestinian control, and Area B, which is under shared Palestinian and Israeli control.

Agriculture would be massively boosted if restrictions on access and water supply were eased, the report says. Most of the farmland in Area C belongs to Palestinians, 326,400 dunams (80620 acres), compared with 187,000 dunams that are attached to Israeli settlements. All Israeli settlements, which are illegal under international law, are situated in Area C.

Access to the Dead Sea would provide opportunities for mineral extraction and tourism. The Palestinian economy could earn $918m (£571m), 9% of 2011 GDP, if minerals such as potash and bromine were harvested from the Dead Sea. The Palestinian tourism sector could be boosted by $126m (£78m) annually or 1% of GDP, by creating Dead Sea hotel resorts, similar to those in Israel and Jordan.

Stone mining and quarrying, construction, and telecommunications industries could develop if Israel lifted restrictions, the report said.

"Access to Area C will go a long way to solving Palestinian economic problems," said Sherman. "The alternative is bleak. Without the ability to utilise the potential of Area C, the economic space will remain fragmented and stunted. Lifting multiple restrictions could transform the economy and substantially improve prospects for sustained growth."