The Palestinian government, allies and campaign groups condemned the scheme, calling it illegal and saying the fragmentation of territory would rip up any internationally backed peace plans for the region.
Standing at the site of the planned settlement in Maale Adumim on Thursday, Finance Minister Bezalel Smotrich said Prime Minister Benjamin Netanyahu and US President Donald Trump had agreed to the revival of the E1 development, though there was no immediate confirmation from either.
"Whoever in the world is trying to recognise a Palestinian state today will receive our answer on the ground. Not with documents nor with decisions or statements, but with facts. Facts of houses, facts of neighbourhoods," Smotrich said.
Israel froze construction plans at Maale Adumim in 2012, and again after a revival in 2020, because of objections from the US, European allies and other powers who considered the project a threat to any future peace deal with the Palestinians.
The move could further isolate Israel, which has watched some of its Western allies condemn its military offensive in Gaza and announce they will recognise a Palestinian state.
Palestinians fear the settlement building in the West Bank - which has sharply intensified since the 2023 Hamas attack on Israel that led to the Gaza war - will rob them of any chance to build a state of their own in the area.
In a statement headlined "Burying the idea of a Palestinian state," Smotrich's spokesperson said the minister had approved the plan to build 3401 houses for Israeli settlers between an existing settlement in the West Bank and Jerusalem.
In Maale Adumim, Smotrich told Reuters the plan would go into effect on Wednesday, without specifying what would happen on that day.
Breaking the Silence, an Israeli rights group established by former Israeli soldiers, criticised Smotrich, accusing him of encouraging West Bank settlement activity while the world's attention was on the Gaza war.
"This land grab and settlement expansion will not only further fragment the Palestinian territory, but will further entrench apartheid," it said.
Nabil Abu Rudeineh, the Palestinian president's spokesperson, called on the United States to pressure Israel to stop settlement building.
Qatar, which has mediated between Hamas and Israel in efforts to secure a ceasefire in Gaza, condemned Smotrich's actions as a "blatant violation of international law".
Palestinians were already demoralised by the Israeli military campaign which has killed more than 61,000 people in Gaza, according to local health authorities, and fear Israel will ultimately push them out of that territory.
About 700,000 Israeli settlers live among 2.7 million Palestinians in the West Bank and East Jerusalem. Israel annexed East Jerusalem in a move not recognised by most countries but has not formally extended sovereignty over the West Bank. The UN and most world powers say settlement expansion has eroded the viability of a two-state solution by fragmenting Palestinian territory. The two-state plan envisages a Palestinian state in East Jerusalem, the West Bank and Gaza, existing side by side with Israel.
Australia, New Zealand, Britain and Canada imposed sanctions in June on Smotrich and another far-right minister who advocates for settlement expansion, accusing both of them of repeatedly inciting violence against Palestinians in the West Bank.
