Clinton met with Israeli officials in Washington and called the 3,000 new homes in the area known as E1 a potential impediment to a "negotiated peace" between Israel and the Palestinians.
"This administration -- like previous administrations -- has been very clear with Israel that these activities set back the cause of a negotiated peace," Clinton said in her remarks at the Saban Center for Middle East Policy.
CNN said Israel's approval of the settlements, which Clinton said would cut through the West Bank, has been seen as retaliation for this week's vote in the United Nations to recognize the Palestinian Authority's bid to achieve "non-member observer state" status.
Clinton called the move by the Palestinians "a step in the wrong direction," but also stuck up for the P.A. for its achievements in improving public services and as an alternative to Hamas, Voice of America said.
"At a time when religious extremists claim to offer rewards in the hereafter, Israel needs to help those committed to peace deliver for their people in the here and now," Clinton said.