A plan to build a new interchange between Jerusalem and the West Bank settlement of Maaleh Adumim was expected to be approved by an Israeli planning committee on Thursday, Haaretz newspaper reported.
It is the latest phase of construction in the contentious E1 zone east of Jerusalem, which has drawn protests from the United States and Europe.
Hagit Ofran of settlement watchdog Peace Now confirmed details of the plan, saying that although the new stretch of road was only 100-200 metres (yards) long, it would have political impact as it would connect Jewish settlements in Israeli-annexed east Jerusalem with Maaleh Adumim.
"At the same time it will let Palestinians cross E1 in way that will allow Israel to say there's no problem."
Experts have warned that settlement construction in E1 could practically cut the West Bank in two and prevent the creation of a contiguous Palestinian state.
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Haaretz said the interchange, which had been approved by Jerusalem planning committee on Wednesday and likely to win approval at district level on Thursday, would facilitate future building in E1.
"The planned new interchange will enable Palestinian vehicular traffic to use the same highway as the settlers, although in different lanes separated by a high wall," Haaretz wrote.
"This is the only highway in the West Bank that will have a separation wall running right down the middle. For that reason, the plan's opponents are already dubbing it 'Apartheid Road', " the paper added.
News about the new road emerged a week before US Secretary of State John Kerry was poised to make his fifth trip to the region since February in a bid to draw the parties back into direct negotiations.
Talks broke down nearly three years ago over a dispute about Israeli settlement building.
Washington last week warned Israel that its continued settlement activity was "counterproductive" to efforts to reach a peace deal with the Palestinians.