Israel approved construction of the homes on Monday as chief Palestinian negotiator Saeb Erakat met US Secretary of State John Kerry in the United States, according to settlements watchdog Peace Now.
"With the situation in occupied Jerusalem at boiling point, Israel's latest settlement announcement is a slap in the face to Kerry, to the international community, to the Palestinian people, and to peace," Erakat said in a statement late Monday.
The US and the international community have condemned repeated plans for new settler homes in east Jerusalem, which the Palestinians want as the capital of their future state.
Israel considers the whole of Jerusalem to be its undivided capital.
Israel captured the eastern sector of the city in 1967 and later annexed it, in a move never recognised by the international community.
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Prime Minister Benjamin Netanyahu's office pledged on October 27 to build more than 1,000 new settler homes.
Jewish settlement building in east Jerusalem and the occupied West Bank has repeatedly derailed peace talks, most recently in April when nine months of US-brokered negotiations broke down.
"The message is clear," Erakat said.
"The Netanyahu government chooses settlements over negotiations, colonisation over the two-state solution, and apartheid over equality and coexistence," he added.
In the absence of negotiations, which have for decades failed to bring peace, the Palestinians are seeking a UN resolution giving a two-year deadline for Israel to end its occupation of the Palestinian territories.