Israel has approved construction of 40 homes and a farm in two new settler enclaves near the southern West Bank town of Bethlehem, Haaretz daily reported on Monday.
"Israel's military establishment has approved the establishment of a new, permanent neighbourhood and a farm near the West Bank settlement of Efrat," the paper said.
"The projects will go beyond the community's current built-up area, constituting an effective expansion of the Etzion bloc of settlements toward the north and northeast," it added.
"With their completion, Jewish settlement in the northern Etzion bloc will reach the edges of Bethlehem's southernmost suburbs."
Plans for the new neighbourhood called Givat HaDagan, were approved by Defence Minister Ehud Barak and a tender for construction was issued this week, the paper said, while the farm, Givat Eitam, was approved by the military.
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Defence ministry officials could not be reached for comment, but settlement watchdog Peace Now said the project should be seen in the light of Israel's stated intention to annex the Etzion bloc in any future agreement with the Palestinians.
"The building in Efrat is especially sensitive in my opinion, because it is east of the road leading to Bethlehem," the NGO's Hagit Ofran told AFP. "That means that if Israel wants to annex Efrat, it will cut off Bethlehem from the southern West Bank."
Israel has come under renewed international criticism for its surge of settlement activities since a government decision on November 1 to speed up building in response to Palestine joining UNESCO.
More than 310,000 Israelis live in settlements in the occupied West Bank and the number is constantly growing.
Another 200,000 live in a dozen settlement neighbourhoods in east Jerusalem, which was captured by Israel in 1967 and annexed in a move never recognised internationally.
The international community considers all settlements in territories occupied by Israel since June 1967 are illegal, whether or not approved by its government.