Israel announced it will release 26 veteran Palestinian prisoners ahead of a resumption of peace talks on Wednesday, but at the same time angered Palestinians by approving new settlement construction.

As some Israeli officials criticised the government's prisoner release, Palestinians slammed the settlement plan, while the EU urged both sides to avoid actions that could undermine the resumption of talks after a three-year hiatus.

A special ministerial committee announced late Sunday it had approved the 26 prisoners to be released ahead of talks, according to a statement from the office of Israeli Prime Minister Benjamin Netanyahu.

The names of the prisoners -- most of whom were arrested for killing Israelis and Palestinians suspected of collaboration with the Jewish state -- were published early Monday morning.

They are expected to be freed ahead of the start of talks Wednesday in Jerusalem between Israeli and Palestinian negotiators.

The 26 constitute the first batch of a total of 104 long-term Palestinian and Israeli Arab prisoners to be freed in four stages, depending on progress in the talks.

Chief Palestinian negotiator Saeb Erakat underlined the importance of the prisoner release for peace talks to continue.

"We hope to put into effect what we've agreed on... we hope for the release of 104 prisoners. Each will return to his house. This is what we've agreed on," he told Israeli Arabic-language radio on Monday.

"There is a clear understanding between us and the Americans and Israelis. Any change (in that) will mean the agreement is off the table."

The decision to free prisoners, however, has angered the families of those killed in assaults.

"This is a day of celebration for terror organisations," Meir Indor, head of Almagor, a group representing Israeli victims of Palestinian attacks, told AFP on Monday.

Most prisoners being freed were arrested for "murder", with five being "accomplices to murder" and one being guilty of "abduction and killing", Israel says.

Three of the prisoners were jailed by Israel for killing Palestinians, presumably those they had deemed to be collaborators.

All prisoners had been arrested before 1994 except one who was arrested in 2001.

Housing Minister Uri Ariel of the far-right Jewish Home party also reacted angrily to the impending releases.

"Terrorists belong in prison," Ariel said in a statement on Monday. "The terrorists who are being released murdered women and children, and it's not clear to me how releasing murderers can help peace."

Ariel's ministry had on Sunday announced tenders for the construction of 793 settlement housing units in annexed east Jerusalem and 394 elsewhere in the West Bank in a move that infuriated Palestinians.

Media reports have implied that the construction announcement was meant to appease Netanyahu's far-right coalition partners, who oppose the release of prisoners but fervently promote settlement construction.

"I don't know of such a deal, but look -- both were announced on the same day," Indor said.

Palestinians slammed the settlement announcement as a move aimed at "preventing" peace talks.

"It is clear that the Israeli government is deliberately attempting to sabotage US and international efforts to resume negotiations by approving more settlement units three days before the ... Palestinian-Israeli meeting," Palestinian negotiator Mohammed Shtayeh said.

"Israel is attempting to prevent negotiations from taking place on Wednesday."

The European Union warned that approval for the West Bank settlements threatened to torpedo the peace talks.

"Israeli settlements in the West Bank are illegal under international law and threaten to make a two-state solution to the Israeli-Palestinian conflict impossible," EU foreign policy chief Catherine Ashton's spokesman Michael Mann told a regular news briefing in Brussels.

In a statement, Ashton's office welcomed the resumption of peace negotiations in Jerusalem.

At the same time, "the European Union urges all parties to refrain from actions which could undermine the negotiation process and the prospects of peace."

Russia's foreign ministry meanwhile described the Israeli move as "a counterproductive step that complicates the atmosphere of the talks".

A ministry statement said Moscow was "seriously concerned" by the move.

A spokesman for Netanyahu insisted, however, that the new settlement units were "in areas that will remain part of Israel in any possible future peace agreement.

"It changes nothing," Mark Regev added.

Direct talks between Israelis and Palestinians were resumed in Washington last month after painstaking US mediation.

The last talks in 2010 broke down on the issue of settlement building.

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