Preliminary approval given for 800 new homes, although actual construction would require sanction from government.
The United States has urged Israel to reverse its decision to seize nearly 400 hectares of land in the occupied West Bank, a move anti-settlement activists termed the largest land grab in 30 years.
Israel announced the massive land appropriation on Sunday in the Etzion settlement bloc near Bethlehem just days after Gaza ceasefire.
A Palestinian official said the latest land grab by Israel would cause only more friction after the Gaza war that left more than 2,000 Palestinians dead and over 10,000 injured.
Palestinian President Mahmoud Abbas, called on Israel to cancel the appropriation. “This decision will lead to more instability. This will only inflame the situation after the war in Gaza,” presidential spokesman Abu Rdainah said.
A US State Department official called the announcement as “counterproductive to Israel’s stated goal of a negotiated two-state solution with the Palestinians”.
“We urge the government of Israel to reverse this decision,” the official said in Washington.
Peace Now group, which opposes Israeli settlement activities in the West Bank, territory the Palestinians seek for a state, said the appropriation was meant to turn a site where 10 families now live adjacent to a Jewish seminary into a permanent settlement.
Construction of a major settlement at the location, known as “Gevaot”, has been mooted by Israel since 2000. Last year, the government invited bids for the building of 1,000 housing units at the site.
Peace Now said the land seizure was the largest announced by Israel in the West Bank since the 1980s and that anyone with ownership claims had 45 days to appeal. A local Palestinian mayor said Palestinians owned the tracts and harvested olive trees on them.
Israel has come under international criticism over its settlement activities, which most countries regard as illegal under international law and a major obstacle to the creation of a viable Palestinian state in any future peace deal.
Israel has said construction at Gevaot would not constitute the establishment of a new settlement because the site is officially designated a neighbourhood of an existing one, Alon Shvut, several kilometres down the road.
About 500,000 Israelis live among 2.4 million Palestinians in the West Bank and East Jerusalem, territory that Israel captured in the 1967 Middle East war.