Israel plans to dig a railway tunnel under Jerusalem’s Old City and name a planned station next to the iconic Western Wall after US President Donald Trump.

Transport Minister Yisrael Katz said he wanted to honour the President for his decision to recognise Jerusalem as Israel’s capital.

The planned railway at at the historically and religiously significant site could be as divisive as Mr Trump’s Jerusalem declaration.

“I have decided to name the Western Wall station … after US President Donald Trump for his courageous and historic decision to recognise Jerusalem as the capital of the Jewish people and the State of Israel,” Mr Katz said in a statement.

The envisaged underground extension of a high-speed rail link between Tel Aviv and Jerusalem is still on the drawing board and a transport ministry spokeswoman said other departments still needed to approve it.

The announcement was quickly condemned by Palestinian leaders already angered by Mr Trump’s decision this month to overturn decades of US policy on the city.

“The Israeli extremist government is trying to race against time to impose facts on the ground in the city of Jerusalem,” Wasel Abu Youssef, a member of the Palestine Liberation Organization’s Executive Committee, told Reuters.

Previous Israeli excavation work around the compound behind the Western Wall, known to Muslims as Haram al-Sharif (Noble Sanctuary) and to Jews as Temple Mount, has triggered Palestinian protests.

Mr Trump has said he was simply acknowledged the reality on the ground by recognising Jerusalem as Israel’s capital – but the Palestinians and most world powers have said he undermined the long-held position that Jerusalem’s status must be settled by future negotiations.

A ministry spokeswoman said the proposed station and underground extension still required the approval of various governmental planning committees, and gave no date for when a final go-ahead might be given.

She said she did not know where funds for the estimated $700-million rail add-on would come from.

Israel considers all of Jerusalem its capital. Palestinians want East Jerusalem – among whose shrines is Islam’s third-holiest mosque, Al-Aqsa – as the capital of a state they seek in the occupied West Bank and in the Gaza Strip. 

– With AAP