The Israeli government is advancing construction plans to build about 1,000 housing units built in parts of Jerusalem that Palestinians demand for their future state.

A government official says the plans also include building infrastructure in the West Bank that will be used by Palestinians as well as Israelis. He spoke on condition of anonymity Monday because he is not authorized to talk to media.

Palestinians demand east Jerusalem — home to the city's most sensitive holy sites for Jews, Muslims and Christians — as their future capital and oppose any Israeli construction there.

Finance Minister Yair Lapid opposed the plan, saying it will lead to a "lead to a serious crisis in Israel-U.S. relations."

The international community and the United States do not recognize Israel's annexation of the territory.