Ahmed Tibi was speaking on the eve of an Israeli cabinet meeting to consider whether to halt construction of a Jewish settlement near al-Khader village in the occupied West Bank.
"If the takeover of Palestinian lands continues, the public's reaction will be as it was in the past, and the intifada will be renewed," Mr Tibi said.
Mr Arafat last week called the construction near al-Khader a flagrant violation of the Israeli-PLO peace accord of September 1993.
Mr Tibi said: "No Palestinian party can continue its participation in the peace process while the settlers' bulldozers bury that process in the lands of the West Bank."
He joined Palestinian villagers yesterday at a protest over what they said was a new West Bank settlement project near Kiryat Sefer. The Palestinians said settlers had taken over more than 100 hectares (250 acres) of Arab-owned land.
The Israeli Prime Minister Yitzhak Rabin, under pressure from within his left-centre cabinet, ordered his attorney-general to investigate whether construction at al-Khader - a private project involving settlers from neighbouring Efrat - could be halted.
Mr Rabin took office in 1992 and promised to curb settlements, home to more than 100,000 Jews. Leaders of the West Bank's 1 million Palestinians view the settlers as a provocation.
Israel Radio said: "The main legal argument to stop the building is that under administrative law the state can cancel a contract with the settlers by arguing that policy has changed."
The PLO plans to press the issue in talks with Israel in Cairo tomorrow. Israel's High Court has a hearing on the matter scheduled for Thursday.