The Jerusalem District Building and Planning Committee on Monday gave preliminary approval to build 1,500 housing units in the East Jerusalem neighborhood of Ramat Shlomo.
The committee reduced the initial number of housing units in the neighborhood from 1,700, Haaretz said.
The decision comes almost three years after a diplomatic crisis with the United States, when Jerusalem approved the construction of housing units in the neighborhood during U.S. Vice President Joe Biden's visit to Israel. Israel was harshly condemned for the plans.
The Israeli prime minister's office issued a statement saying the building approved in Ramat Shlomo isn't the beginning of construction but another stage in the existing project, Haaretz said. But Israeli politicians and Palestinian officials slammed the decision.
Palestinian Authority President Mahmoud Abbas aide Nabil Abu Rudaineh called the decision a "blatant challenge" to the international community and declared it would further isolate Israel, The Jerusalem Post reported.
Abbas, who also criticized the decision, instructed Riyad Mansour, the Palestinian envoy at the United Nations, to contact the U.N. Security Council concerning the settlement-building issue in East Jerusalem, the Ma'an News Agency reported.
The committee is expected to approve the construction of about 6,500 units over the 1967 Green Line in Israel by the end of the week, the Post said.
The committee is expected to approve stages B and C for the construction of 1,363 housing units at Givat Hamatos, a Jewish neighborhood near Beit Safafa in East Jerusalem, and then approve stage A, which calls for the building of 2,610 units in the neighborhood.
Israeli officials told the Hebrew language daily Ma'ariv that half of the planned units are for Arab families in Beit Safafa.
On Thursday, final approval for the building of 1,000 units in Gilo is expected to be given, the Post said.
The Green Line marks the area between Israel and the Palestinian Territories, land captured by Israel in the 1967 Six Day War, and includes the West Bank, the Golan Heights and the Gaza Strip.