All settlements in both the West Bank and East Jerusalem are considered illegal under international law.
Ehud Olmert, the current prime ministers, has said he considers settlements blocs in East Jerusalem as part of Israel.
Palestinians criticised the housing ministry's decision, saying it undermines peace efforts.
"We strongly condemn this decision, which is a continuation of similar decisions to expand settlements that have never stopped," Saeb Erakat, the Palestinian senior negotiator, said on Sunday.
A statement from the office of Mahmud Abbas, the Palestinian president, called the decision a "dangerous threat" to the peace process.
|Har Homa, a Jewish settlement, is built on|
Palestinian land in East Jerusalem [Reuters]
It said the peace process "cannot advance without a complete and total halt to settlement activity".
The Israeli settlement watchdog Peace Now also criticised the decision, which it said was part of a larger effort by the Israeli right to pre-empt the division of Jerusalem in a final peace deal.
"More settlements in Jerusalem will mean that the physical ability to have compromises between Israelis and Palestinians will be harder," Yariv Oppenheimer, the director of Peace Now director, said.
But Sidis, the housing ministry spokesman, referring to the occupation of East Jerusalem in the Six Day War, said: "These offers are being published for the occasion of Jerusalem Day [on Monday], celebrating the 41st anniversary of the reunification of the city."
Uri Lupolianski, the Jerusalem mayor, also defended the move, telling public radio it was necessary to address the "urgent need for housing for the Jewish population.
West Bank protests
In other news, hundreds of Palestinians, Israelis and international activists gathered outside the occupied West Bank village of Bilin on Sunday to protest against the extension of Israel's separation wall.
At least three people were wounded by rubber bullets and another eight were treated for tear-gas inhalation when Israeli troops dispersed the protest, the organisers said.
The villagers say they mobilised last month when the Israeli army told them it would confiscate some 2,500 dunams (620 acres) of land for the separation wall, which Israel insists is necessary to prevent attacks from the territory.