GENEVA | Thu Jan 31, 2013 1:43pm EST

(Reuters) - U.N. human rights investigators called on Israel on Thursday to halt settlement expansion and withdraw all half a million Jewish settlers from the occupied West Bank, saying that its practices could be subject to prosecution as possible war crimes.

A three-member U.N. panel said private companies should stop working in the settlements if their work adversely affected the human rights of Palestinians, and urged member states to ensure companies respected human rights.

"Israel must cease settlement activities and provide adequate, prompt and effective remedy to the victims of violations of human rights," Christine Chanet, a French judge who led the U.N. inquiry, told a news conference.

The settlements contravened the Fourth Geneva Convention forbidding the transfer of civilian populations into occupied territory and could amount to war crimes that fall under the jurisdiction of the International Criminal Court (ICC), the United Nations report said.

"To transfer its own population into an occupied territory is prohibited because it is an obstacle to the exercise of the right to self-determination," Chanet said.

About 250 settlements in the West Bank, including East Jerusalem, have been established since the 1967 Middle East war and they hold an estimated 520,000 settlers, according to the U.N. report. The settlements impede Palestinian access to water and farmland.

The settlements were "leading to a creeping annexation that prevents the establishment of a contiguous and viable Palestinian state and undermines the right of the Palestinian people to self-determination," it said.

After the General Assembly upgraded the Palestinians' status at the world body, Israel said it would build 3,000 additional settler homes in the West Bank and East Jerusalem - areas Palestinians want for a future state, along with the Gaza Strip.