Poland's Chief Rabbi Michael Schudrich described the excavation as the worst desecration of a Jewish cemetery he has seen during the 17 years he has been a rabbi in the country.
Jewish religious law holds that bodies only should be disturbed once they are buried under limited circumstances, such as saving lives.
A day after visiting the construction site in Siemiatycze, a small town that was about 60 percent Jewish before World War II, Schudrich showed The Associated Press photos of large mounds of earth with human bones, including a large part of a human skull.
"This is a full-out scandal," the rabbi, who originally is from New York, said. "Sometimes people can do something by mistake and could not realize they are seeing bones, but skulls are hard to miss."
An official with the local authorities, Bogumila Kazimierczak, insisted that the building work did not take place on the grounds of the Jewish cemetery, but on already developed land that is managed by an automobile association.
The mayor's office had no information indicating construction there should be prohibited, Kazimierczak said.
Schudrich disputes that, saying the land in question was part of the old cemetery. He said that while another part of the cemetery owned by the state was returned to the Jewish community after the fall of communism in Poland, the area in question was not because it was private property.
The rabbi said he warned local authorities that it was holy ground and asked them to inform him if there was ever a request to build there.
"I went there three or four years ago and I told them that if you put a shovel in the ground, you are going to find bones," Schudrich said.
Prosecutors have opened an investigation.
Only 70 of the 7,000 Jews estimated to have been living in Siemiatycze on the eve of World War II survived the Holocaust, and none are believed to living there now, Schudrich said.
"This is a very egregious violation of the final resting place of the Jews of this town," Gideon Taylor, co-chair of the Foundation for the Preservation of Jewish Heritage in Poland, said.
Poland, which was home to Europe's largest Jewish community before the Holocaust, has more than 1,000 Jewish cemeteries across Poland. In most cases no Jewish communities are left to look after them, Taylor said.
"It's essential that local authorities protect them because there is no local Jewish voice to protect the memory of those who died," Taylor said.
Monika Scislowska contributed to this report.
This story has been corrected to reflect that part of the cemetery was returned to the Jewish community after communism.
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