Israel's Supreme Court on Sunday rejected a deal that would have given the government three years to evacuate Migron, the West Bank's biggest and oldest settlement outpost, court documents showed.
The court said it would extend a deadline it set last year from March to August 2012, but that it could not approve any further delay.
"We are pushing the evacuation back by four months, it must take place no later than August 1, 2012," the court decision said.
The Israeli government had sought court approval for a deal it agreed with Migron's residents after the court ordered the outpost to be dismantled last August.
Under the deal, Migron's residents were to be allowed to remain at the outpost until November 2015 while the government built them new homes on land elsewhere in the West Bank, just a few kilometres (miles) away.
The court did not rule on where the residents would be moved to, but said the timeframe contained within the deal was unacceptable.
The ruling said Migron was "one of the most difficult and unusual cases when it comes to outposts," noting that it was built on privately-owned Palestinian land.
It noted that the government had sought a deal under which Migron's residents would voluntarily leave the settlement, but said that upholding the law was more important than a negotiated agreement.
"The question of a consensual evacuation is important, but it is not the only issue and it is not a decisive consideration that can entirely erase questions of the violation of private property and respect for the law," the ruling said.
Signup to our newsletter and follow us on Facebook and Twitter!
Prime Minister Benjamin Netanyahu, whose rightwing coalition draws heavily on the support of settlers and their sympathisers, stated his government's respect for the court and made a veiled call for settlers to honour its decision.
"The government of Israel, like all Israeli citizens, respects the court's ruling and acts in accordance with the laws of Israel," a statement from his office quoted him as saying. "Sometimes it is necessary to state the obvious," he added.
Israeli anti-settlement group Peace Now, which first filed a lawsuit along with six Palestinian landowners more than five years ago, hailed the Supreme Court's decision.
"We are satisfied by the fact that the Supreme Court gave a clear-cut decision telling the settlers and the government that no one is above the law and everyone has to obey the law," the group's director Yaariv Oppenheimer told AFP.
"We expect the settlers to show national responsibility and to evacuate in a peaceful and appropriate manner."
Migron was set up in May 2001, according to court documents.
Its residents say they were encouraged to settle by the Israeli government.
"The government that sends these loyal citizens to settle in these settlements then expels them with a Supreme Court decision," Migron spokesman Itay Hemo said.
Israel only considers settlements set up with government permission in the West Bank to be illegal, but the Palestinians and the international community say that all Israeli settlement construction violates international law.