Jad Ishaq, director of the Applied Research Institute of Jerusalem, told Al Jazeera the settlements will comprise 20,000 new housing units, making room for 90,000 new settlers.
They are expected to raise to 570,000 the number of settlers living illegally on Palestinian land in the occupied West Bank, or 10 per cent of the Israeli population, added Ishaq.
Facts on the ground
"Israel is trying to answer the Palestinian initiative for peace by creating facts on the ground and stripping Jerusalem of its Arab character," he said.
A legal adviser to the Palestinian government, speaking on condition of anonymity, said "the announcement shows that Israel believes ... it can take as much it wants, when it wants, and nobody will say or do anything".
Israel's settlements, including those in Arab East Jerusalem, are considered illegal under international law.
Saeb Erekat, the chief Palestinian negotiator, said: "Today, the occupier has no clothes. Today it is obvious that Israel wants Jerusalem for only some of Jerusalem's people.
"One day Israel demolishes a home and centre for disabled children; the next it approves plans for three illegal ultra-Orthodox settlements in East Jerusalem, calling into question the very viability of Jerusalem's ancient communities of Christian and Muslim Palestinians."
On Wednesday, Israeli forces demolished a home for special needs children in the East Jerusalem neighbourhood of Wadi Joz.
Israeli border police forcibly evicted the caregivers and children at dawn, according to the Israeli Committee Against House Demolitions.
Israeli officials said the centre lacked a proper permit.
World Bank report
The demolition coincided with a World Bank report which found that Palestinians in East Jerusalem have extreme difficulty obtaining building permits from Israeli authorities.
The report also indicated that a disproportionate number of demolitions occurred in East Jerusalem, despite the fact that most violations took place in West Jerusalem.
"Eighty per cent of building violations [registered in Jerusalem] were recorded in West Jerusalem [while] 80 per cent of actual demolition orders issued were for buildings in Palestinian East Jerusalem," the report said.
The report says the Israeli closure policy has resulted in the fragmentation of the West Bank into a series of cantons that are completely disconnected from one another.
"In economic terms, the restrictions have created a level of uncertainty and inefficiency which has made the normal conduct of business extremely difficult and therefore has stymied the growth and investment which is necessary to fuel economic revival," it added.
The legal adviser to the Palestinian government said the World Bank report offered no new findings.
"We've been saying this for years. We just wish the world would wake up and not just listen but actually do something. We have a situation where every European state is currently violating its own laws by trading with Israeli settlements.
"If they are serious about the two-state solution its time for them to live up to their own rhetoric and do something about it."
Meanwhile, according to the Israeli press, the construction of the three new settlements seems earmarked in the controversial E-1 area east of Jerusalem, despite repeated promises from the Israeli government to the US that it would not build or expand settlements there.
The area, known as Metropolitan East Jerusalem, which extends from Ramallah in the north to Bethlehem in the south, historically accounts for 30-40 per cent of the Palestinian economy in the West Bank and the Gaza Strip combined.
By fragmenting that metropolitan unit and severing East Jerusalem from the rest of the West Bank, says Saeb Erekat, "the Jerusalem-area wall and settlements mean no viable Palestinian state, no Palestinian capital in East Jerusalem, and thus no viable two-state solution".
The Israeli daily Haaretz, quoting an unnamed source in the government, said officials believe the plan is "problematic" because of political sensitivities.