Israel plans to build 740 new homes in settlements in occupied East Jerusalem, a minister said, despite its commitment to freeze all settlement activity.
Rafi Eitan, minister for Jerusalem affairs, said Israel had never promised to stop building within Jerusalem and had a duty to house its citizens.
It is budgeting to build 500 new homes in Har Homa and 240 in Maale Adumim.
A Palestinian spokesman condemned the plans, accusing Israel of seeking to destroy renewed peace talks.
The two sides agreed at a peace conference in Annapolis in the US in late November to revive the 2003 peace plan known as the roadmap.
According to the plan, Israel must halt all settlement activity and the Palestinians must rein in militants.
But soon after the conference, Israel announced a tender for 300 homes in Har Homa.