The Israeli government has said that it is advancing construction plans to build about 1,000 housing units in occupied East Jerusalem that Palestinians want to be part of their future state.
A government official said on Monday that plans include building infrastructure in the occupied West Bank that will be used by Palestinians as well as Israelis. He spoke on condition of anonymity because he was not authorised to talk to the media.
Al Jazeera's Imtiaz Tyab, reporting from West Jerusalem, said that about 600 additional houses will be built in Ramat Shlomo and 400 in Har Homa districts of East Jerusalem.
The Palestinians seek East Jerusalem, home to the city's most sensitive holy sites for Jews, Muslims and Christians, as their future capital and oppose any Israeli construction there.
Israel has said all of Jerusalem will forever be its capital, citing historical, religious and security reasons. But the international community, including the US, does not recognise Israel's annexation of the eastern sector of the contested city.
The housing announcement could greatly escalate tensions in East Jerusalem, which has been the scene of violent unrest for months.
Our correspondent said Benjamin Netanyahu, Israeli prime minister, was under pressure by his right-wing coalition partners, who are pressing for the building of the new settlements and have threatened to withdraw their support from his government.
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Tensions have been high since June, when the body of three three Israeli teenage settlers were found weeks after they were abducted by unidentified group. Israeli groups retaliated by abducting and killing a Palestinian teenager in East Jerusalem, spurring riots.
The abductions set off a series of events that led to the 50-day Gaza war.
Yair Lapid, Israeli finance minister, of the centrist Yesh Atid party issued a statement late on Sunday night opposing the timing of the housing plan.
"This plan will lead to a serious crisis in Israel-US relations and will harm Israel's standing in the world," he said.
The US has condemned similar Israeli construction in the past.
Last week US officials said the Barack Obama administration rejected the Israeli defence minister's requests to meet several top national security aides.
The administration is still miffed over negative comments that Moshe Yaalon made about the Middle East peace efforts of John Kerry, US secretary of state, and the ongoing nuclear negotiations with Iran.
Source: Al Jazeera and agencies