A Palestinian village has sued two Canadian companies for building in an Israeli settlement in the West Bank, the village's lawyer said.

This is the first time a private company has been sued for investing in settlements, which are a violation of international law, Michael Sfard, the attorney representing Bilin village, said on Thursday.

The claim was filed on Wednesday in a Canadian court against Green Park International and Green Mount International, sister companies registered in Quebec.

The companies could not be reached due to the time difference.

The construction is taking place on land seized from Bilin after Israel captured the West Bank in 1967 - a violation of the Fourth Geneva Convention, which forbids an occupying power from transferring its own civilians into occupied territory.

The suit asks the court to halt all construction and to demolish the homes the companies have built in Modiin Illit, Israel's largest settlement.

About 250 apartments in 30 buildings are at issue, Sfard said.

The village also seeks punitive damages of $1.98m.

The unprecedented suit "will serve as a blinking red light for any investors and corporations that are considering doing anything in the settlements," Sfard said.

Bilin is best known for its weekly protests against Israel's West Bank separation wall, which is being built to stop suicide bombers, but has also taken half of the village's land.