RAMALLAH, West Bank -- Palestinian Prime Minister Salam Fayyad, meeting with Vice President Biden on Wednesday, said Israel's decision to approve 1,600 housing units in east Jerusalem would undercut U.S. efforts to revive a dormant Israeli-Palestinian peace process.

"It's damaging for sure," Fayyad said in his office in Ramallah after greeting Biden. "This is a moment of great challenge to the effort led by the United States to get the political process going again."

On Tuesday evening, while having dinner with Israeli Prime Minister Binyamin Netanyahu at his official residence, Biden issued a statement condemning the housing decision, saying the timing of the announcement was "precisely the kind of step that undermines the trust" needed to enter constructive negotiations.

"We definitely appreciate the strong statement of condemnation by the administration vis-a-vis this action which definitely undermines confidence in the prospects of the political process," Fayyad said.

Fayyad, as prime minister, has been working to build up Palestinian institutions in the absence of a viable peace process that could lead to a negotiation of Palestinian statehood.

President Obama's Middle East envoy, George Mitchell, earlier in the week had secured Israeli and Palestinian agreement for indirect, U.S.-mediated negotiations. It remained unclear when or if those talks would begin and how the major issues that divide the sides -- territory, borders, the fate of Palestinian refugees and the future of how Jerusalem will be shared -- would be handled.

An Israeli cabinet minister apologized Wednesday for what he called an embarrassment to Biden, Reuters reported. "This should not have happened during a visit by the U.S. vice president," Welfare Minister Isaac Herzog said on Army Radio. "This is a real embarrassment and now we have to express our apologies for this serious blunder."

Before the housing announcement, Biden had highlighted the U.S. commitment to Israeli security and its promise not to let Iran obtain a nuclear weapon. He stressed his personal admiration for Israel and the Jewish people, and visited two of the country's most hallowed sites, Mount Herzl national cemetery and Yad Vashem, the Holocaust memorial museum.

But after learning of the housing announcement, Biden kept Netanyahu waiting 90 minutes before dinner as he and his aides mulled what to say in the statement. They ultimately opted to use the word "condemn," which is rarely used in diplomatic terms when criticizing the behavior of close allies.

"I condemn the decision by the government of Israel to advance planning for new housing units in East Jerusalem," Biden said in a statement released during the meal. "The substance and timing of the announcement, particularly with the launching of proximity talks, is precisely the kind of step that undermines the trust we need right now and runs counter to the constructive discussions that I've had here in Israel."

"We must build an atmosphere to support negotiations, not complicate them," Biden added, just hours after he had declared there was a "real opportunity" for talks to move forward.

A spokesman for Eli Yishai, the interior minister who announced the new construction, said that the plan approved by the Jerusalem District Planning Committee has been in the works for more than three years. The decision might have blindsided Netanyahu, who is focused on cultivating ties with the Obama administration to ensure it remains committed to stopping Iran from getting a nuclear weapon.