"The Civil Administration has given the green light for 296 housing units at Beit El, but this is only the first stage of a process before actual construction can begin," said the spokesman for a unit within the defence ministry which administers the West Bank.
Israel's chief peace negotiator Tzipi Livni said she had been informed about the move as she was holding talks in Rome with US Secretary of State John Kerry yesterday, but sought to play down its impact.
"They listened and they understood and for the moment, there is no reaction."
The Civil Administration said the new homes were a compensatory measure after the government evicted 30 settler families from Ulpana, an unauthorised outpost on the outskirts of Beit El following a High Court ruling.
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The announcement came on the back of a report that said Prime Minister Benjamin Netanyahu had ordered a freeze on tenders for new settler homes in a bid to give a chance to US-led efforts to revive moribund peace talks with the Palestinians.
"This initiative proves Netanyahu is deceiving the world," she told AFP.
"On the one hand, he lets us believe that he is putting the brakes on settlement and on the other, he gives the go-ahead for an enormous building project."
She explained that offering tenders was a procedure usually followed in the larger settlement, but was not necessary for construction in the smaller, more isolated, settlements such as Beit El which is made up of some 900 housing units.
Beit El is located on the northern outskirts of Ramallah in an area that would not be annexed to Israel under any future peace agreement, the watchdog noted.