Housing Minister Uri Ariel said in a statement on Thursday that the move was a "fitting Zionist response to the formation of a Palestinian terror government." He said the housing plans were "just the beginning."
The settlement units are in areas the Palestinians claim for their future state.
The Construction and Housing Ministry announced the new plans early Thursday in one of several steps necessary before construction begins.
Israel has vowed to take punitive action in response to the Palestinian unity government formed last week because it is backed by the militant group Hamas.