The unauthorised workers were detained along with 150 employers over the past two weeks, a police statement said.
On March 14 the Israeli parliament approved a tough new law to keep out Palestinian workers, as part of measures aimed at tackling a surge in attacks against Israelis.
The legislation means that the Israeli employer of a Palestinian who has entered the Jewish state without the hard-to-obtain permit could face several years in prison.
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Since October 1, a wave of violence has killed 198 Palestinians, 28 Israelis, two Americans, an Eritrean and a Sudanese, according to an AFP count.
Most of the Palestinians were killed while carrying out knife, gun or car-ramming attacks.
Others were shot dead by Israeli forces during clashes or demonstrations, while some were killed in air strikes on Gaza.
An Israeli government adviser said this month that of the attacks in Israel, 44 percent were carried out by Palestinians who were in the Jewish state illegally.