Worldwide law views the entire West Bank as "occupied territory" and considers all Israeli settlement building there to be illegal.
The opening ceremony was reportedly attended by Jerusalem Mayor Moshe Leon, Transport Minister Yisrael Katz and Public Security Minister Gilad Erdan.
Already dubbed by Palestinians "Apartheid Road", the road was built more than 10 years ago but remained closed due to a dispute between the Israel Defence Forces (IDF) and the country's police over who should man checkpoints along the highway.
But a Palestine Liberation Organisation official joined others who have called it "the first apartheid road" and voiced fears it could create a precedent.
The Israeli army frequently conducts arrest campaigns across the West Bank -- including occupied East Jerusalem - on the pretext of searching for "wanted" Palestinians.
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"The opening of this road comes within the framework of Israel's ongoing efforts to undermine any chance of reaching a political solution", the ministry said in a Thursday statement.
About 600,000 Israelis live in over 230 settlements built illegally since the 1967 occupation of the Palestinian territories.
Mohammed Abu Zaid, administrative director of the local council for Al-Zaim, a Palestinian village on the other side of the wall, fears that the journey from his village to the city will be lengthened by some eight kilometres (five miles) if the project is completed.
The International Court of Justice said in 2004 that the apartheid wall violated international law and urged Israel to remove it.
Dr. Ashrawi also condemned Israeli plans to appropriate 1,200 dunams (300 acres) of occupied Palestinian land in Bethlehem to expand the illegal settlements of Efrat and Gush Etzion, including land inscribed as world heritage under threat by UNESCO.