A Reuters correspondent saw several hundred soldiers deployed in Khirbet al-Taweel, in the occupied West Bank, on Tuesday.
They guarded six bulldozers that reduced to rubble buildings that were constructed without Israeli permits. Palestinians say such documents are nearly impossible to obtain.
Israel has also drawn Palestinian anger by continuing to expand settlements on land they seek for a state.
Villagers said the stone mosque was built in 2008, and that soldiers removed prayer rugs and holy scriptures before tearing it down.
Other razed buildings included three one-storey family houses, animal shelters and a communal well. Locals said around 30 people were made homeless.
The Israeli army said in a statement that eight structures, including a "mosque in use", were demolished because they had been built illegally inside a dangerous live-fire military training zone.
"I went to make my dawn prayers at the mosque and found the army surrounding it," said resident Abdel Fattah Maarouf, 63. "Then they tore it down. They want this area so they can build settlements in it."
Speaking on local radio, Yasser Abed Rabbo, a top Palestinian official, said that "unless acts like this cease completely" there was no room to return to US-sponsored peace talks with "this expansionist, racist occupier".
BA/BA