The Israeli government has seemingly set itself on a collision course with hardline settlers after announcing it intends to demolish all unauthorised outposts built on privately owned Palestinian land in the West Bank by the end of the year.

Settlers' leaders pledged to resist demolition. "The wholesale removal of the outposts is a declaration of war on Jewish settlement," Gershon Mesika, chairman of the Shomron regional council, told the Israel Hayom newspaper.

A statement from the Binyamin and Samaria settlers' committees said the government's decision, given to the high court of justice on Monday, was "a punch in the face of the nationalist public". It described Prime Minister Binyamin Netanyahu's action as "treasonous".

The government move is in response to legal challenges by Israeli rights groups and pressure from the international community to curb settlement growth, although Israel also intends to make official other unauthorised outposts built on West Bank land under Israeli control. All settlements on occupied land are illegal under international law.

Peace Now, an Israeli group which campaigns against settlements, said the decision could affect around 70 outposts fully or partly on private land. However, according to the group's Hagit Ofran, the policy "could lead to the post-facto legalisation of dozens of outposts – almost doubling the number of 'legal' settlements with a single decision".

She said the policy "opens the door to a new era of Israeli land confiscations in the West Bank ... It appears clear that Prime Minister Netanyahu is seeking to play games with the distinction between registered and unregistered private land. This strategy will enable Israel to legalise many outposts by post-facto declaring the land they are on to be state land."

Outposts in the West Bank are mostly built and inhabited by hardline nationalist-religious settlers, who believe Jews have a divine right to settle on the biblical land of Judea and Samaria. The outposts begin as rudimentary camps but often develop into permanent structures supplied with power and water by the Israeli authorities.

Last week, the army demolished Havat Gilad, a hilltop settlement near Nablus which was built without authorisation. The move prompted clashes between activists and soldiers, in which the army fired rubber bullets and teargas canisters. The outpost's occupants vowed to rebuild it.

Rabbi Shalom Dov Wolpo of SOS Israel, a militant organisation opposed to any land concessions to the Palestinians, said the evacuation of unauthorised outposts could end in civil war between Jews.

"It will probably come down to a war between Jews, to our great dismay. And it's not the settlers who are initiating it – it's the army that is fighting ... We will not let this happen," he said in a radio interview.

He later withdrew comments in which he had said that settlers should fire back against soldiers who shoot rubber bullets when evacuating outposts.

Seven Palestinian protesters were injured by live ammunition and rubber bullets fired by Israeli soldiers and settlers during clashes near the West Bank city of Nablus on Monday. According to the army, Palestinian youths threw rocks at settlers from a nearby outpost, which was demolished in January but has since been rebuilt, after settlers reportedly uprooted trees.