The United States has sharply rebuked Israel for approving plans to build 900 new houses on disputed land in East Jerusalem.
Washington says it will hamper efforts to get peace talks restarted.
The UN has also criticised the move, and the Palestinian Authority says it's another step that shows Israel is not ready for peace.
The planning and construction committee of Israel's interior ministry authorised the expansion of Gilo, which is built on land captured in 1967. The land was later annexed to the Jerusalem municipality.
Settlements on occupied territory are considered illegal under international law, though Israel disputes this.
The Palestinian Authority has demanded a halt to all settlement construction before it will attend new peace talks, which were suspended last year.
Obama playing a long game?
It is the second time in two months that the administration of US President Barack Obama has spoken out on settlements.
In September the White House said it regretted reports that Israel planned to approve new construction in the West Bank.
The BBC says the conventional wisdom in the US is that Israeli Prime Minister Benjamin Netanyahu has successfully thwarted Mr Obama's first foray into the stalled Middle East peace process, rebuffing American calls for a complete settlements freeze.
But some Washington observers say it's too early to write off the President's efforts. They believe he is playing a long game and that the frosty relations between Mr Netanyahu and the White House could cause problems for the Israeli leader in the future.
Largest batch of approvals under Netanyahu
A BBC correspondent in Jerusalem says Tuesday's announcement represents by far the largest batch of planning approvals for building on occupied territory since Mr Netanyahu became prime minister.
Nearly 500,000 Jews live in more than 100 settlements built on occupied territory in the West Bank and East Jerusalem.
With the latest project yet to be reviewed, the public can still make objections.