The Israeli Supreme Court rejected the state's request to postpone dismantling an illegal West Bank settler enclave until late 2015 on Sunday.
The Israeli government submitted the delay petition earlier this month, seeking to bypass the High Court's earlier order to dismantle the Migron outpost by March 31 because it was built on privately held Palestinian land.
Prime Minister Binyamin Netanyahu has scrambled to find a solution that would satisfy both settlers and the court.
Earlier this month, the government asked the court to let Migron's settlers stay put until new homes were built for them on a nearby hilltop by November 2015.
But the court ruled that accepting the agreement would be tantamount to flouting the rule of law.
"The obligation to fulfil the earlier ruling is not a matter of choice," the court said.
Nevertheless it extended the evacuation deadline to August 1.
Settler leader Shimon Riklin, one of the enclave's founders, told Israel's Channel 2 TV that the evacuation of Migron "would not pass quietly."
Palestinian National Authority spokesman Ghassan Khatib said Palestinians would reserve judgement on the ruling.
"We will judge the matter by deeds, rather than by decisions, words or intentions," Mr Khatib said.
"Migron is only one of too many Israeli outpost-settlements that are supposed to be evacuated. Israel's behaviour is an example that illustrates their intention to consolidate the occupation, rather than end it."
Israeli ultra-nationalists began illegally settling Migron in 2001. Settlers claim Arab plaintiffs have failed to prove ownership of the land and say government officials helped them to set up their outpost, despite not officially sanctioning it.
Israel has authorised more than 120 settlements on Palestinian land, but many like Migron lack even that legitimacy.
But the government has hooked them up to utility grids and has sent troops to protect them.
Most countries do not distinguish between "authorised" and "unauthorised settlements" and have earmarked all of the West Bank for the future state of Palestine, along with Gaza and east Jerusalem, territories that Israel seized in 1967.
Israel has severed relations with the UN Human Rights Council ahead of a planned visit to prove West Bank settlements, its Foreign Ministry announced on Monday.
Israel has accused the council of a pro-Palestine bias.
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