Israeli Prime Minister Benjamin Netanyahu on Wednesday ordered the suspension of a controversial measure banning Palestinians from riding the same buses as Jewish settlers when returning from Israel to the West Bank.

The announcement came several hours after a three-month pilot project that was approved by Defense Minister Moshe Yaalon went into action.

The ban was immediately attacked by rights groups and the opposition, who denounced it as an "unprecedented" move that heaped unnecessary humiliation on the Palestinians and would ultimately damage Israel.

"Under a three-month pilot project, Palestinians who work in Israel will, starting Wednesday, need to return home by the same crossing without taking buses used by (Israeli) residents" of the occupied West Bank, a defense ministry official told AFP.

Thousands of Palestinians travel each day to work in Israel, mainly in the construction business, using travel permits each time they cross.

But the move was quickly stopped by Netanyahu, an official in his bureau told AFP.

"The proposal is unacceptable to the prime minister. He spoke with the defense minister this morning and it was decided that the proposal will be frozen," he said.

Under terms of the arrangement, Palestinian commuters' outward journey would remain unchanged but for their return trip they would have to board special Palestinian-only buses, which would have dropped them off at the same checkpoint where they crossed.

They would cross the checkpoint on foot, then make their own way home.

Before, they were able to catch any buses returning to the West Bank, serving both Palestinian commuters and settlers.

Public radio said Yaalon had agreed to the ban as it would allow for "better control" of the Palestinians and "reduce security risks."

Israeli settlers in the West Bank have called for years for Palestinians to be banned from public transport there, arguing their presence poses a security risk.