Hundreds of Israeli troops and police officers accompanied by bulldozers arrived before dawn at the Wadi al-Hummos area in Sur Baher, a Palestinian neighbourhood between East Jerusalem and the Israeli-occupied West Bank.
Residents said they had been given permits to build by the Palestinian Authority and accused Israel of an attempt to grab West Bank land, the BBC reported.
Israel, however, argues that the buildings are located too close to the separation wall, a military barrier built by Israel around the West Bank.
A spokesman with the paramilitary Israeli Border Police told Xinhua news agency that demolition of 12 buildings had begun.
International and local activists were mobilized to the area and documented the demolitions. Live broadcast on Israeli channels showed massive construction vehicles razing a two-storey building and then digging through the ruins.
Three families with 17 individuals, including nine children, will be displaced by the demolitions, according to a statement by the Palestinian Authority (PA). It condemned the demolitions as "illegal" and a "war crime".
Secretary-General of the Palestinian Liberation Organization Saeb Erekat urged the International Criminal Court to open a judicial investigation into the case.
On Sunday, after years of legal battles between the residents and Israeli authorities, the Israeli Supreme Court approved the demolitions.
The demolitions follow an order by the Israeli Defence Ministry to destroy about 70 apartments in Sur Baher, charging the constructions were too close to the barrier, "pose a security risk" and without permits.
According to the UN Office of the Coordination of Humanitarian Affairs, Israel has approved only 1.5 per cent of the overall construction building permits requested by Palestin.
Sur Baher was captured and occupied by Israel during the 1967 Six-Day War.
The Palestin want East Jerusalem as the capital of their future independent state, while Israel wants all Jerusalem to be its eternal capital.
Israel annexed East Jerusalem in the 1967 war and declared the entire city as its eternal indivisible capital in 1980, a move that has never been recognized by most of the international community.
( With inputs from IANS )