The fate of Amona, which an Israeli court demanded be demolished as it is built on private Palestinian land, was one of the key factors driving the right wing's push for the bill.
Yesh Din, an Israeli organization that fought against the illegal outpost in court, hailed the start of the operation in a post on Facebook.
Israel's top court ruled in 2014 that the hilltop outpost of Amona, located some 20 kilometres north of Jerusalem on land belonging to Palestinians from surrounding West Bank towns, must be vacated by February 8.
This was the first time the Israeli government has evacuated a Jewish outpost in four years. Some chained themselves to heavy objects and locked their doors.
About 50 families now live in Amona.
Avichay Buaron, a spokesman for the settlers, told the Israeli Channel 2: "This is a dark day for us, for Zionism, for the state and for the great vision of the Jewish people returning to its homeland". This comes only hours after Israel approved 3,000 new homes for Jewish settlers in the region on Tuesday.
Al-Samri said in a statement around 11:30 a.m. that Israeli police forces had been deployed at the illegal outpost since early Wednesday morning "in preparation for the direct evacuation".
On Thursday last week, Israeli officials gave final approval for 153 settler homes in east Jerusalem. The protestors got support from activists and politicians from the mainland. Trump hasn't denounced them, and he's also made a controversial campaign pledge - welcomed by Israel's government and condemned by Arab leaders - to move the US embassy to Jerusalem, which both Israelis and Palestinians want as their capital. "It is a awful thing", he told Channel 2 TV.
Israel captured the West Bank in the 1967 Middle East war. Much of the territory has deep religious and historical significance for many devout Jews, who see it as their biblical heartland and heritage.
There's been a clear uptick in the rate of settlement approval since Donald Trump was sworn in as USA president less than two weeks ago - and Trump is expected to be supportive of settlement expansion.
We once again warn against any unilateral actions that can be an obstacle to a negotiated two-State solution and call on both parties to return to meaningful negotiations on the basis of relevant Security Council resolutions, and in accordance with worldwide law, in order to address all final-status issues.