In the city of Ramallah, the value of central commercial plots has doubled each year since 2005, hitting $4,000 per square metre ($372 per sq foot).
Prices are being pushed up by a weak dollar and Israeli control of large chunks of the territory, the organisation said in a report.
Investment in the Palestinian economy is "precariously" low, it also warned.
In the report published on Thursday, the World Bank said prices for land in key West Bank cities are now beyond the reach of most local businesses and homebuyers.
It cited Israeli controls over much of the West Bank, which it said was "fragmented into a multitude of enclaves, with a regime of movement restrictions between them".
"The physical access restrictions are the most visible, with 38% of the land area reserved by the government of Israel to serve settlements and security objectives," the report said.
It said demand is also rising because of a Palestinian population growth rate of about 3% per year.
It also said remittances from overseas Palestinians increased in 2006 and 2007, leading more families to invest in land, given the falling value of their savings, which are usually held in US dollars.
Economic stagnation
But overall, the report noted that investment in the West Bank had "dropped to precariously low levels".
Public investment has virtually ceased over the past two years and private investment remained stagnant after dropping 15%t between 2005 and 2006, it said.
The findings come less than a year after international donors pledged more than $7bn over three years in the hope of boosting progress towards a Palestinian state.
Foreign aid, the World Bank said, "has succeeded in doing little more than slowing down the deterioration of the economy, despite ever larger volumes".
The report concludes that little that can be done to improve the situation without a peace deal.
"Ultimately, the restrictions on access to land (under Israeli control) will only be resolved with the final resolution of the peace process and the end of the occupation," it said.
Israel and the Palestinians formally re-launched peace talks at a conference in the United States in November 2007, with the goal of resolving their decades-old conflict by January 2009.
But with changes in leadership in Israel and the US under way, and uncertainty over the future of Palestinian Authority President Mahmoud Abbas, few in the region believe the target is reachable.
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