The United States criticized Israel on Monday for authorizing 600 new housing units in the east Jerusalem neighborhood of Pisgat Ze'ev, describing the move as "counter-productive."

"We've relayed our strong concerns to the government of Israel, that this kind of activity, particularly as we try to relaunch meaningful negotiations is counter-productive and undermines trust between the parties," said State Department spokesman Philip Crowley.

On Friday the government gave the green light for the new homes to be built in the Jewish neighborhood in east Jerusalem, drawing anger from the Palestinians.

"We have seen reports that plans for 600 housing units in Pisgat Ze'ev in east Jerusalem, originally deposited in 2008, have advanced in the approval process, although we understand that the total number of units has been reduced from the original plan," said Crowley.

"We also understand that this is not a final approval for the project, but it is a step in that direction. The Palestinians insist they will only return to the negotiating table if Israel agrees to a complete freeze on settlement construction in the occupied West Bank, including east Jerusalem," he added.

"We continue to urge both parties to refrain from unilateral actions that, whether intended to or not, undermine trust and efforts to resume negotiations that will bring an end to the conflict and result in a two-state solution. We believe it is of great importance that negotiations between Israel and the Palestinians resume as soon as possible."

Israel announced a 10-month freeze on new building permits for settler homes in the West Bank in late November but it excludes east Jerusalem.

About 200,000 Jews live in east Jerusalem alongside 270,000 Palestinian residents.