The long-stalled project near Jerusalem, known as E1, further fragments lands envisioned as a Palestinian state, advancing a goal of Israeli hard-liners.

The Palestinian Authority says the decision is illegal and will "destroy" the prospects for a two-state solution.

Israel has approved a long-delayed settlement project that would build 3,400 housing units for Jews in the West Bank, in a move that both its backers and its many critics say would undercut Palestinian ambitions to control the region.