Israel's interior minister Eli Yishai has given final approval for the construction of 1,600 new settler homes in east Jerusalem, his spokesman told AFP on Thursday.
Roei Lachmanovich also said the interior minister was set to give final approval for another 2,700 settler homes in east Jerusalem neighbourhoods in "a couple of days."
"He has approved 1,600 homes in Ramat Shlomo and will approve 2,000 more in Givat Hamatos and 700 in Pisgat Zeev," Lachmanovich said.
The 1,600-house construction in Ramat Shlomo has already caused a diplomatic rift between Israel and Washington.
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It was first announced as US Vice President Joe Biden visited the region in March 2010 for talks with Israeli and Palestinian leaders in a bid to lay the ground for new direct peace talks between the two sides.
The timing of the announcement angered Washington and prompted the Palestinians to accuse Israel of lacking a committment to restarting the peace process.
But Lachmanovich said the final approvals were "economic" not political, tying the final go-ahead to protests over housing prices and the cost of living that have shaken Israel in recent weeks.
"These are being approved because of the economic crisis here in Israel, they are looking for a place to build in Jerusalem, and these will help," he said.
"This is nothing politicial, it's just economic."