JERUSALEM (AFP) - Israel's interior ministry on Sunday revoked the residency of a Palestinian convicted of driving a suicide bomber to a Tel Aviv nightclub where he killed 21 people in 2001.

The move came as Prime Minister Benjamin Netanyahu considers a bill to rescind both the residency and social benefits of any Palestinian resident in Israel or annexed east Jerusalem involved in attacks on Israelis, reports said.

The proposed legislation would reportedly extend the measures to family members as well.

In a statement, Interior Minister Gilad Erdan confirmed he had cancelled the permanent residence of Mahmud Nadi, who served a 10 year prison sentence for his part in the 2001 bombing.

Nadi was convicted of being an accomplice to murder, helping cause serious injury and helping someone to stay in Israel illegally.

The decision to strip him of his residency was communicated to him in a letter sent by Erdan, which gave no explanation of the timing of the move.

"In these circumstances, given the severity of your actions and the flagrant breach of trust as a resident of Israel... I have decided to make use of my authority to cancel your permanent residency in Israel," Erdan wrote.

The decision involves cancellation of Nadi's entry in the population registry and the revocation of his blue Israeli ID card, and means he will no longer be eligible to receive any social benefits, such as national insurance or health insurance.

The so-called "blue ID" is an Israeli identification card issued by the interior ministry that entitles holders to national insurance and freedom of movement throughout the country.

"Israel is facing a wave of terror and incitement, in which (Israeli) residents are carrying out attacks, aiding them and justifying them, and even inciting others to carry out crimes and acts of murder," Erdan said.

"These people cannot continue enjoying the permanent status of resident of Israel, and I will work with all my power to cancel their residency and prevent them from receiving any financial benefit which this residency grants," he said.

Annexed Arab east Jerusalem has been hit by months of unrest, which has spread across the occupied West Bank and to Arab communities inside Israel.

Last week, two Palestinians burst into a Jerusalem synagogue with meat cleavers and a gun and killed four rabbis at prayer, as well as a policeman who came to their aid, in the city's deadliest violence in six years.

Palestinian residents of east Jerusalem have residency rights but not Israeli citizenship. A very small number of Arab residents of Israel are not citizens but do have residency rights.