Jerusalem's planning committee forged ahead with plans to build a nine-storey Jewish seminary in the heart of a densely-populated Palestinian neighbourhood near the Old City.
Plans for the new tower block, to be built in the Sheikh Jarrah neighbourhood of annexed Arab East Jerusalem, were deposited for consultation, giving the public 60 days to submit any objections, settlement watchdog Peace Now said.
"It's a plan for a nine-storey, ultra-Orthodox yeshiva in Sheikh Jarrah which was deposited today for objections," spokesman Lior Amihai told AFP news agency.
"The plan was supposed to be discussed and approved a few weeks ago, however it was postponed -- most probably due to political reasons," he said.
"It's not a game changer but it's on a piece of land in Sheikh Jarrah which has already suffered a lot. It's a very sensitive area and I think the prime minister knows it."
Israel occupied East Jerusalem during the Six-Day War of 1967 and later annexed it in a move never recognised by the international community.
It considers all of Jerusalem its "eternal, indivisible" capital and does not see construction in the eastern sector as settlement building.
The Palestinians want East Jerusalem as capital of their promised state, which is currently being discussed in US-led negotiations with Israel that are struggling to make headway ahead of an April deadline.
Both the Palestinians and the international community consider all Israel construction on land seized in 1967 to be a violation of international law.