Israeli plans for 1,000 new settler homes in annexed east Jerusalem are "destroying" efforts by Washington's top diplomat to revive the peace process, a Palestinian official charged on Thursday.
The United States also warned that such a plan would run counter to efforts to reach a peace deal.
But Israel said the construction plans were not new and accused the Palestinians of seeking a pretext to avoid a resumption of direct talks which broke down in 2010 and which US Secretary of State John Kerry is trying to revive.
"We consider the recent decision of the Israeli government to build a thousand homes in east Jerusalem as effectively destroying the efforts of Kerry," top Palestinian negotiator Saeb Erakat told AFP.
He accused Israel of having "a systematic plan for destroying Kerry's efforts which involves an escalation of settlement building, a displacement of the population of the Jordan Valley, an increase of settler attacks against our people and confiscation of our land."
Erakat's remarks came just hours after an NGO told AFP Israel was preparing to build more than 1,000 settler homes in east Jerusalem despite a major push by Washington to revive dormant peace talks.
The US State Department called the move "counterproductive".
"Israelis must recognise that continued settlement activity and new housing construction in East Jerusalem is counterproductive to the cause of peace," spokeswoman Jen Psaki said.
"The US position on settlements is clear and has not changed: we do not accept the legitimacy of continued Israeli settlement activity, which would undermine peace efforts and would contradict Israeli commitments and obligations," she said.
Danny Seidemann, director of Jerusalem settlement watchdog Terrestrial Jerusalem, said contracts had been signed for 300 homes in Ramot and another 797 plots were to be offered for sale in Gilo.
Both are in mainly Arab areas of the Holy City which were occupied by Israel in the 1967 Six-Day War and later annexed in a move never recognised by the international community.
The news emerged just days after Kerry's latest trip to the region, his fourth in as many months.
Signup to our newsletter and follow us on Facebook and Twitter!
Settlement construction was the issue which brought about a collapse of peace talks in September 2010, and the Palestinians say they will not return to negotiations while Israel builds on land they want for a future state.
But Ofir Gendelman, a spokesman for Israeli Prime Minister Benjamin Netanyahu, said the plans were not new, and accused the Palestinians of looking for any excuse to avoid peace talks.
"The Palestinians keep making up excuses in order to run away from peace negotiations with Israel," he wrote on Twitter.
"The Palestinians recycle old claims which are based on false information. They run to the media to avoid discussing outstanding issues," he said, calling for them to "resume peace talks immediately".
He said the plan to build hundreds of new homes in Gilo and Ramot was "not new" and had been "reposted due to administrative requirements".
According to public radio, tenders for the new homes were invited late last year and it was only the names of the winning bids which were released on Wednesday.
Housing ministry spokesman Ariel Rosenberg also said there had been no tenders for new east Jerusalem housing invited this year.
"Since the start of this year, there have not been any tenders in east Jerusalem but last year there were more than a thousand," he told AFP, refusing to say why.
Earlier this month, Netanyahu reportedly promised Kerry he would "rein in" settlement construction in the West Bank, including east Jerusalem, to give American peace efforts a chance.
Settlement watchdog Peace Now also confirmed that not a single tender had been invited in months.
Israel does not view construction in east Jerusalem as illegal, but most of the world views all settlement activity on land seized in 1967 as a violation of international law.
The Palestinians want the eastern sector of the city as the capital of their future state.