Israeli Prime Minister Benjamin Netanyahu is considering a plan to cancel the residencies of Palestinians in East Jerusalem, a media report said on Monday.

The measure would affect about 80,000 Palestinians, among more than 370,000 living in the municipality of Jerusalem approved by the Israeli parliament, which describes the city as the "eternal and united" capital of Israel, Efe news reported.

"We need to examine the possibility of cancelling their residency," Netanyahu said.

Residency status allows people in Palestinian neighbourhoods to move freely throughout Israel, unlike the population of the West Bank who require special permits.

The proposal was part of a package partially approved by the Israeli government to halt the wave of violence which began on October 1.

Netanyahu's proposal comes in the wake of thousands of Israelis taking to the streets in Tel Aviv calling for new peace talks with Palestinians amid an international effort to quell a month-long Israeli-Palestinian wave of violence.

The protesters marched from Rabin Square in central Tel Aviv, Israel's trade capital, towards Hakirya compound where the Ministry of Defense is located on Saturday night, Xinhua news agency reported.

According to Peace Now, a left-wing organization that organised the march, about 6,000 people attended the event. The demonstrators chanted "Jews and Arabs refuse to be enemies" and "two states for two people, Israel and Palestine."

"These difficult days, days of violence, fear, and pain, are only reinforcing our understanding that there will be no real security here until there's peace through a negotiated solution," the organizers said in a statement.

Peace Now chairman Yariv Oppenheimer blamed the government and ultra-nationalist leaders for the recent unrest.

"They took a whole country hostage of an unnecessary religious war, and we're all paying the price," he told the protesters.

He accused the government of turning the country into a "violent, racist and hopeless" place.