Having the construction announcement and prisoner release coincide is intended to blunt expected right-wing protests against freeing the prisoners, the senior official told Israeli newspaper Haaretz.
Several recent killings of Israelis in West Bank attacks have intensified political opposition to the release, both on the streets and in Prime Minister Binyamin Netanyahu's Cabinet.
Deputy Defense Minister Danny Danon argued against the prisoner release in a letter to Cabinet ministers Thursday.
Families of Israelis killed by prisoners slated for release have also vowed a protest campaign.
Netanyahu briefed U.S. Secretary of State John Kerry about the dual plans when the two met in Rome Wednesday, Haaretz and The Jerusalem Post said.
The Palestinian Authority has also been briefed, Haaretz said.
Israeli Justice Minister Tzipi Livni, Jerusalem's chief negotiator, met with Palestinian officials this week as part of a nine-month process that started in July to come to a final-status agreement by March on a two-state solution that envisages an independent Palestine alongside Israel.
Israel agreed to release 104 Palestinian prisoners in four phases as part of a deal to bring Palestinians back to the negotiating table.
It released the first group of 26 in August. All released prisoners are serving at least 20 years for attacks on Israelis.
A ministerial committee is expected Sunday to approve the names of those freed in the second phase, Haaretz said.
The list will then be published, as required under Israeli law. Opponents will have 48 hours to petition the High Court of Justice against the release.
If the court rejects the petitions swiftly, as it did in August, the prisoners are expected to be released Tuesday, Haaretz said.
The settlement proposals will be published at the same time, the senior official said.
Envoys from the so-called Middle East Quartet -- representing the United Nations, United States, European Union and Russia -- are to meet in Jerusalem Monday. The quartet is involved in mediating the Israeli-Palestinian peace process.
Leaders of the ultranationalist Habayit Hayehudi, or Jewish Home, party said they opposed Netanyahu's decision to publish the construction proposals, or tenders, in conjunction with the prisoner release.
"The attempt to tie in the release of murderers is cynical and morally repugnant," the leaders said in a statement. "It would be better if he didn't release murderers and didn't build. This seems like a contemptible attempt to both release murderers and to blacken the settlement program."
Palestinian Authority President Mahmoud Abbas met with European leaders this week to urge them to act against the Israeli construction, saying it threatens the peace process.
But the Israeli official told Haaretz the understandings that led to the resumption of the talks did not include any Israeli commitment to freeze settlement construction.