| Israel's settler homes in East Jerusalem have been a major sticking point in the Middle East peace process [EPA]
Israel's approval of construction plans for 1,600 homes in East Jerusalem has reignited a dispute with Washington over the threat of new settlements to the upcoming Palestinian statehood debate.
The White House on Thursday urged Israel and the Palestinians to avoid any actions that jeopardize efforts to restart stalled peace talks.
The press briefing did not specifically mention the new approval, but the announcement of the same project last year during a visit by Vice President Biden caused a diplomatic rift.
Jay Carney, White House spokesperson, ducked a question on Thursday about whether Israel's approval for the construction of the new settler homes would make it harder to convince the Palestinians not to seek statehood at the United Nations.
"Our position on that has not changed, which is that we urge both sides not to take any action that makes it harder for the two sides to come together and negotiate," he told reporters.
Victoria Nuland, State Department spokeswoman, echoed his remarks.
"As we've said many times, unilateral action of this kind works against our efforts to get folks back to the table, makes it all more difficult," she said.
"It undercuts trust," she added.
'Deep regrets' from the EU
EU foreign policy chief Catherine Ashton on Friday expressed her "deep regret" over Israel's approval of more new settler homes in east Jerusalem.
The European Union "has repeatedly called on Israel to end all settlement activity, including natural growth, and to dismantle outposts erected since March 2001," Ashton said in a statement.
"Settlement activity threatens the viability of an agreed two-state solution and undermines ongoing efforts to resume negotiations."
"It is with deep regret that, once again, I received information of the publicly stated intention of the Israeli government to continue settlement expansion in East Jerusalem," Ashton said.
More homes planned
Eli Yishai, Israel's interior minister, is also expected to approve another 2,700 homes in the coming days, Roi Lachmanovich, a spokesperson for the interior ministry, told the AFP news agency on Thursday.
Yishai, a member of the ultra-Orthodox Shas party, has given approval for "1,600 homes in Ramat Shlomo and will approve 2,000 more in Givat Hamatos and 700 in Pisgat Zeev," Lachmanovich said.
Lachmanovich added the final approvals were "economic" not political, linking the interior minister's decision to the mass demonstrations over housing prices and the cost of living that have rocked Israel in recent weeks.
"These are being approved because of the economic crisis here in Israel, they are looking for a place to build in Jerusalem, and these will help," he said. "This is nothing political, it's just economic."
Later on Thursday, Haaretz, an Israeli newspaper, reported that: "Yishai said during a meeting on Thursday 'the time is ripe for an upheaval in the coalition' to solve the ongoing social crisis that has rocked the country over the past month."
'Hard to avoid'
Al Jazeera's Paul Brennan reports on Israeli protesters querying the cost of settlemenents
The issue of linking settlement building to Israel's housing protests was used two weeks ago when 24 Knesset members came out and said they should use more land in the West Bank to relocate those protesting over raising housing prices, Al Jazeera's Cal Perry, reporting from Tel Aviv, said.
"When you speak to people here in the tent city [where the protesters are gathered], they would rather not talk about this issue [settlement construction], but it is hard to avoid with a billion dollars spent on building and construction in the West Bank," Perry added.
The settlements are considered illegal under international law.
Israel has occupied the West Bank since 1967, and annexed East Jerusalem, a move not recognised by the international community.
The announcement of the new settler homes comes just weeks ahead of an expected move by the Palestinian Authority to have a Palestinian state recognised at the UN.
Yishai's ministry first announced the project in March 2010, as Biden visited Israel and the Palestinian territories to lay the groundwork for new direct peace talks between the two sides.
The announcement drew sharp criticism from the US, leaving Binyamin Netanyahu, the Israeli prime minister, red-faced as he sat down for talks with Biden and prompting a mini-crisis between the allies.
Last week, the interior ministry issued a similar final green-light to the construction of 900 new homes in the East Jerusalem settlement neighbourhood of Har Homa, which lies in the southwest of the city, neighbouring Bethlehem.
Yishai linked that construction project to the protest movement, saying it would help address the "real estate crisis".
Israeli news site Ynet quoted him as saying he had directed his staff to promote the construction of small housing units in the settlement neighbourhood "in an effort to enable all Israeli citizens to purchase an apartment".
Despite Palestinian and international community objections to the settlement building, Israel has continued to push forward its policy of expansion, which is seen as being in direct conflict with achieving any sort of viable peace.