"We are deeply concerned about the Israeli government’s plan to advance thousands of settlement units … many of them, deep in the West Bank," State Department spokesman Ned Price told reporters.
"We strongly oppose the expansion of settlements which is completely inconsistent with efforts to lower tensions and ensure calm."
Israeli-Palestinian relations have been strained after violent clashes broke out in May and resulted in an 11-day long conflict and the death of 250, including dozens of children largely in the Palestinian territories.
The Biden administration has urged the two sides to find a two-state solution to the conflict.
Roughly 475,000 Israelis already live in settlements in the West Bank.
Price said Israel's latest move "damages the prospect for a two-state solution."
"We… view plans for the retroactive legalization of illegal outposts as unacceptable," he added. "We continue to raise our views on this issue directly with senior Israeli officials in our private discussions."
But despite the administration’s alleged stance on how to establish peace in the region, progressives in Congress have accused the Biden administration of being too soft on Israel.
When pressed by reporters about whether Israel will face repercussions for expanding settlements in the territory, Price refused to give a concrete answer.
"These are concerns that we have discussed at very senior levels with our Israeli partners," Price said. "Our Israeli partners know where we stand and we will continue to engage with them in our diplomacy on this."