Israel gave initial approval on Wednesday for thousands of new settlement homes that would cement West Bank lands within its municipal boundaries around Jerusalem, drawing a Palestinian demand that Washington intervene.
Most world powers deem the Israeli settlements illegal for taking in territory where Palestinians seek statehood.
The Jerusalem municipality green-lit what it described as a new eastern neighborhood on lands located over the West Bank boundary, near the Palestinian hub city of Ramallah. The site, which once housed an airport, is known to Israelis as Atarot.
The plan, which requires further stages of approval, is for 3,000 homes to be built, with a view to adding another 6,000 eventually, Jerusalem Deputy Mayor Arieh King told Reuters.
Palestinians want the West Bank and Gaza Strip for a state with East Jerusalem as its capital. Israel views the entire city as its indivisible capital.
U.S.-sponsored peace talks stalled in 2014. Washington has since recognized Jerusalem as Israel's capital, without explicitly backing its claim on all the city.
"This settlement plan aims to conclude the separation of Jerusalem from our outlying Palestinian area ... in a bid to Israelize it, Judaise it and annex it," the Palestinian foreign ministry said in a statement.
It urged the United States and other powers "to immediately intervene to stop these colonial projects and plans".
The U.S. Embassy in Jerusalem had no immediate comment.