A long-time split between President Barack Obama and Netanyahu appeared to widen further after the Israeli leader's visit to the White House last week.
Netanyahu, in an interview on the CBS program "Face the Nation" on Sunday, called the administration’s condemnation of the project “baffling.”
"It's against the American values. And it doesn't bode well for peace," he said. "The idea that we'd have this ethnic purification as a condition for peace, I think it's anti-peace."
"It did seem odd for him to try to defend the actions of his government by saying our response did not reflect American values," White House Press Secretary Josh Earnest said. "The fact is American policy has been clear and unchanged under several administrations, both Democrat and Republican."
"When it comes to American values, it’s American values that led to this country’s unwavering support of Israel. It’s American values that have led us to fund an Iron Dome system," he added.
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The issue centers on last week's final go-ahead in Jerusalem for construction of 2,610 housing units in Givat Hamatos, beyond the Green Line.
"It’s clear how American values dictate or at least guide our thinking on support of Israel," Earnest said.
"We oppose any unilateral actions that attempt to prejudge final status issues including the status of Jerusalem. These can only be legitimately determined through direct negotiations through the parties that this president has worked hard to try to facilitate," he concluded.
Earnest bemoaned the fact Netanyahu's criticism focused on Israelis purchasing homes in East Jerusalem neighborhood Silwan and "seemed to ignore our concerns" over construction in the southern Jerusalem neighborhood Givat Hamatos.
Earnest warned last week that the project would distance Israel from "even its closest allies" and raise questions about its commitment to seeking peace with Palestinians.
The Associated Press and Reuters contributed to this report.