US Secretary of State Marco Rubio has inaugurated a contentious archaeological tourism site led by an Israeli settler group in occupied East Jerusalem.

America's top diplomat was a guest of honour at the opening of the so-called "Pilgrimage Road", a tunnel excavated under Palestinian homes next to Jerusalem's Old City.

The opening ceremony took place at the City of David, a biblical tourism site operated by the Elad settler organisation in the Palestinian neighbourhood of Silwan.

Mr Rubio's presence was condemned by Palestinian rights groups as giving US backing to Israel's "grip of settlement" close to Jerusalem's most sensitive holy sites.

Residents of Silwan have for years faced eviction orders and home demolitions to make way for Jewish settlements and the expansion of the archaeological park, according to rights groups. Settlements are illegal under international law.