The White House has condemned Israel's approval of 1600 new settler homes in east Jerusalem and says the timing of the move is not helpful with US Vice President Joe Biden in the country.
"The United States condemns the decision today by the government of Israel," White House spokesman Robert Gibbs said on Tuesday.
Gibbs said that neither the substance nor the timing of the announcement was helpful.
The move came just two days after the Palestinians reluctantly agreed to the first indirect talks with Israel after months of US shuttle diplomacy.
Biden, the most senior member of President Barack Obama's administration to visit Israel, was there to boost the Middle East peace efforts and met earlier with hawkish Prime Minister Benjamin Netanyahu in Jerusalem.
He pledged Washington's "absolute, total, unvarnished commitment to Israel's security".
"Progress occurs in the Middle East when everyone knows there is simply no space between the United States and Israel. There is no space between the United States and Israel when it comes to Israel's security," Biden said after the meeting with Netanyahu.
The announcement of the 1,600 new settlers homes was also criticised by Israel's defence ministry.
"The entourage of Defence Minister Ehud Barak expresses its anger after the unwarranted announcement which affects peace negotiations with the Palestinians - negotiations of the highest interest for Israel," his office said in a statement.
"Sources in the defence ministry underline that Israel has acted for long months to create trust between the parties so that negotiations can start, and it would be well-advised to take this into account," the statement said.
Tuesday's announcement by the Israeli interior ministry also angered visiting US Vice-President Joe Biden.
"The substance and timing of the announcement, particularly with the launching of proximity talks, is precisely the kind of step that undermines the trust we need right now and runs counter to the constructive discussions that I've had here in Israel," Biden said on Tuesday night.
The Israeli decision also infuriated the Palestinians, who consider settlements to be a major hurdle to reach peace and want occupied east Jerusalem as the capital of their promised state.