According to Jawad Siyyam, a Palestinian activist who heads the Silwan Community Centre, a group of Jewish settlers moved into two buildings in the neighbourhood.
Silwan is a densely populated Palestinian neighbourhood which flanks the southern walls of Jerusalem's Old City and has been the scene of frequent clashes involving a small group of hardcore settlers, the Israeli police and young, stone-throwing locals.
Clashes erupted three weeks ago when settlers forcefully took over 25 apartments in the area.
Israel recently approved the construction of more than 2,600 settler homes in Arab east Jerusalem, prompting Washington -- Israel's closest and most powerful ally -- to express its "deep concern" over the plans.
Those involved in Monday's takeover claimed to have purchased their homes legally from Palestinian owners, according to Siyyam.
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"There are documents that prove that (the homes) were sold by Palestinians to settlers and so lawyers dealing with settlement issues have said we can't appeal," he told AFP.
Israeli nationalist groups, who say they aim to increase the presence of Jews in Palestinian neighbourhoods in east Jerusalem, confirmed to AFP they had "facilitated and directed two new (building) acquisitions" in Silwan on Monday.
Siyyam said there were now around 500 settlers living in 90 buildings in the neighbourhood.
Israel's settlement building in the occupied West Bank and annexed east Jerusalem, which is illegal under international law, has caused the breakdown of multiple rounds of Israeli-Palestinian peace talks.
The settlements are built on land the Palestinians want for their future state, whose capital would be in east Jerusalem.
Some 200,000 settlers live in east Jerusalem neighbourhoods, as well as around 290,000 Palestinians.