The United States Wednesday denounced Israeli plans to expand a West Bank settlement by 300 homes, saying it posed a hurdle toward kickstarting moribund peace talks with the Palestinians.

"We're very clear that continued Israeli settlement activity in the West Bank undermines peace efforts and contradicts Israeli commitments and obligations," said a State Department spokesperson, Mark Toner.

"You know, our position on settlements remains unchanged. We do not accept the legitimacy of continued Israeli settlement activity."

Israeli Prime Minister Benjamin Netanyahu vowed on Wednesday to build the 300 new settler homes in Beit El, after MPs voted down a bill which would have saved five buildings in one of its neighborhoods from demolition.

The Knesset vote, which saw 69 MPs oppose the legalization bill against 22 in favor, effectively ended legislative efforts by the settler lobby and its right-wing supporters to avoid a court-mandated July 1 removal date.

But Netanyahu warned after the vote that he would not allow people to "use the legal system to harm the settlement movement," and announced plans to add the 300 new homes to Beit El, which is near the West Bank city of Ramallah.

"Beit El will be expanded, the 30 families will remain in Beit El, and 300 new families will join them," he said.

Toner said the United States had made its views about the move known to the Israelis, adding "it impedes progress on any kind of comprehensive settlement, and that's ultimately what everyone here, most importantly both sides, both parties, want to see happen.

"Or at least that's what they claim to want to see happen."

Direct talks between the Israelis and Palestinians on a peace deal remain in deep freeze after grinding to a halt in late 2010 over the issue of settlement construction