The Israeli military government in the occupied West Bank plans to establish Jewish civilian courts there to apply Israeli law to settlers, an Army command source said today.

The move is being opposed by West Bank Palestinian leaders, who view it as an attempt to undermine Jordanian law in the West Bank and as a step by Israel toward annexing the occupied territory.

Since Israel captured the West Bank from Jordan in the 1967 six-day war, Jordanian civil and criminal law has applied there in accordance with international conventions governing occupied territories, Jordan had occupied the West Bank since 1948.

In practice, however, Jordanian civil and criminal law has been applied only to Arab inhabitants and Israeli military courts have handled all security offenses in the West Bank. Jewish settlers have maintained that their regional councils are unable to impose their bylaws on taxation, sanitation, construction and other civil matters through either one of these local court systems.

Government sources said the West Bank military commander, Lt. Gen. Binyamin Ben-Eliezer, ordered establishment of the first Jewish civil court in Kiryat Arba, an urban settlement near Hebron housing 5,000 Israelis. A judge holding the rank of magistrate will hear the cases and a special West Bank appeals court will be formed in Jerusalem.

"This means they are extending Israeli sovereignty to the settlements. It is a serious matter," said Elias Freij, mayor of Bethlehem. "It is the beginning of annexation, if they treat the settlements as part of Israel. Since this is still occupied territory, Jordanian law should apply to everybody."

Freij and other Palestinian leaders said the new courts would encourage would-be settlers to believe that annexation of the West Bank is close at hand and, therefore, lead to an increase in the number of Israelis seeking to move there.

Meanwhile, the Israeli Energy Ministry said it plans to take over the Arab-owned East Jerusalem Electirc Co. on Dec. 31 because it was unable to reach an agreement with the company's directors on supplying electricity to Jewish settlements and Israeli Army camps in the West Bank.

A year ago, the ministry announced the takeover plans, but an Israeli court ordered both sides to negotiate a compromise. An agreement in prinicple had been reached whereby the Arab firm would continue to service Jewish suburbs in East Jerusalem and West Bank Army camps and settlements, but with electricity purchased from the Israel Electric Co. grid.

Anwar Nusseibeh, the East Jerusalem Electric Co. board chairman, said: "There had been an agreement on the main points, and then suddenly we were presented with new conditions. . . . It is very difficult, a very crucial problem."

East Jerusalem Electric is the largest Arab-owned business enterprise left in the West Bank.

Freij, who is vice chairman of the firm, said he had objected to supplying electricty to Jewish settlers, but that even after the board agreed to that, the Israelis remained determined to take over the company.

"It's obvious they intended to grab it all along, and were just playing us along," Freji said.

A final appeal will be made to the Israeli Supreme Court on Dec. 30, officials said.