Israel is pushing ahead with a Jerusalem construction project that had caused a rift between Israel and the United States.

Hagit Ofran of the settlement watchdog Peace Now said 900 hundred homes have been approved in Ramat Shlomo.

Israel first announced the plans in 2010 during Vice President Joe Biden's visit to Israel, sparking a diplomatic spat with Washington.

White House spokesman Jeff Rathke on Thursday called it "damaging and inconsistent" with resolving the conflict between Israel and the Palestinians with a two state solution.

Israel captured east Jerusalem with its Jewish, Christian and Muslim holy sites from Jordan in the 1967 war. Palestinians demand the area as their future capital.

Israelis view the east Jerusalem areas as regular neighborhoods. The international community rejects them areas as illegal settlements.