Jerusalem's municipality has approved construction of a new building for Jews in the heart of an Arab neighborhood of east Jerusalem.

A statement from the municipality on Wednesday says "the city will continue to build in all neighborhoods."

Ahmad Rowadi, a Palestinian official, says "more facts on the ground mean more obstacles" to peace.

The approval is also likely to draw criticism from the international community.

Israel captured east Jerusalem in the 1967 Mideast war and considers the entire city its eternal, undivided capital. The Palestinians want the eastern sector for the capital of their hoped-for state and they see Jewish settlements there as an obstacle to peace.

Hundreds of Jews live in heavily-guarded enclaves deep inside Palestinian neighborhoods, many with the aim of challenging any future division of Jerusalem.