Israeli Defence Minister Ehud Barak has given the green light to build 277 new homes in the Ariel settlement of the occupied West Bank, his office said on Monday.
"Defence Minister Ehud Barak last week approved the marketing of 277 housing units in the Neuman district in Ariel," it said, referring to a sprawling settlement deep inside the northern West Bank.
Ariel Mayor Ron Nachman told AFP that the housing units had not yet been built and that the settlement had been waiting for years for the political green light to complete the neighbourhood.
"It's a neighbourhood in the centre of the town which we started building exactly 10 years ago," he said, explaining that the project had been put on hold in 2004 for political considerations.
"Now the defence minister is allowing us to finish this neighbourhood," he said. "We don't have a vacant apartment in the whole city."
All building projects in the West Bank must be signed off by Israel's defence minister before being put to tender.
With a population of some 18,000 residents, Ariel is one of the largest settlements in the West Bank and lies some 20 kilometres (12 miles) inside the borders of Israel before the 1967 Six-Day War.
Hagit Ofran of Israeli settlement watchdog Peace Now said construction of the new homes was likely to begin "within a year or two."
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She described it as a cynical move to exploit the nationwide protests which have seen tens of thousands demonstrating across Israel over the country's lack of affordable housing.
"The government of Israel is exploiting the housing crisis in a cynical way in order to promote its settlement policy," she told AFP.
"The majority of Israelis do not wish to live in the settlements, therefore construction in Ariel does not help the housing crisis."
The timing of the move was also deeply provocative, she said, coming a month before the Palestinians approach the United Nations for recognition of a state along the lines that existed before the 1967 war.
They are to present their bid for UN membership on September 20, in a move which has infuriated Israel.
"They're throwing oil on the flames ahead of September," Ofran said of the Israeli decision.
"This government has decided that it will take unilateral steps. Because the Palestinians are acting unilaterally... they permit themselves to act unilaterally."
Since it occupied the West Bank in the 1967, Israel has set up more than 130 settlements across the territory. They are now home to more than 300,000 residents.
Interior ministry figures show the majority of settlers live in eight large settlements which Israel wants to annex in any final peace agreement with the Palestinians.
The largest settlements are urban enclaves which tend to lie close to the border between Israel and the West Bank, with the notable exception of Ariel, which lies deep inside Palestinian territory.