Reports from Jericho said Mr Saadat, of the Popular Front for the Liberation of Palestine,
and several of his colleagues were refusing to come out of the prison.
Al-Jazeera TV has broadcast a telephone interview with Mr Saadat in which he says he is in his prison cell and will not surrender.
Mr Saadat is normally guarded by British and US prison warders, in addition to Palestinian jailers, but they were withdrawn on Tuesday for what they described as security reasons.
Mahmoud Abbas has condemned the raid and said the US and UK warders were responsible for the prisoners' safety.
He said the withdrawal of the British and US guards
who normally observe the prison was a grave violation of agreements with the Palestinians.
British Foreign Secretary Jack Straw said
the PA had ignored repeated British requests for guarantees regarding the security of the prison guards.
Israeli troops are reported to have threatened to kill the prisoners if they do not surrender
Reports from the scene said 50 jeeps and three tanks pushed into the oasis town in the Jordan valley, as two helicopters hovered overhead.
The army later brought a large armoured bulldozer to the prison, which proceeded to demolish walls.
One prison policeman is reported to have been killed by gunfire and there are reports of 18 Palestinians wounded.