Israel's nationalist-religious government on Sunday tabled plans to approve thousands of building permits in the occupied West Bank, despite U.S. pressure to halt settlement expansion that Washington sees as an obstacle to peace with Palestinians.

The plans for approval of 4,560 housing units in various areas of the West Bank were included on the agenda of Israel's Supreme Planning Council that meets next week, although only 1,332 are up for final approval, with the remainder still going through the preliminary clearance process, reports Reuters.

"We will continue to develop the settlement of and strengthen the Israeli hold on the territory," said Finance Minister Bezalel Smotrich, who also holds a defence portfolio that gives him a leading role in West Bank administration.

Most countries deem the settlements, built on land captured by Israel in the 1967 Middle East war, as illegal. Their presence is one of the fundamental issues in the Israeli-Palestinian conflict.

Palestinians seek to establish an independent state in the West Bank and Gaza Strip with East Jerusalem as their capital. Peace talks that had been brokered by the United States have been frozen since 2014.

The U.S. State Department said it was "deeply troubled" by the move, and called on Israel to return to dialogue aimed at de-escalation.

"As has been longstanding policy, the United States opposes such unilateral actions that make a two-state solution more difficult to achieve and are an obstacle to peace," department spokesperson Matthew Miller said in a statement.

Since entering office in January, Prime Minister Benjamin Netanyahu's coalition has approved the promotion of more than 7,000 new housing units, most deep in the West Bank.

It also amended a law to clear the way for settlers to return to four settlements that had previously been evacuated.

In response to Sunday's Israeli decision, the Palestinian Authority - which exercises limited self-rule in parts of the West Bank - said it would boycott a meeting of the Joint Economic Committee with Israel scheduled for Monday.

The Palestinian Islamist group Hamas, which has ruled Gaza since 2007, after Israel's withdrawal of soldiers and settlers, condemned the move, saying it “will not give (Israel) legitimacy over our land. Our people will resist it by all means".

Jewish settler groups welcomed the announcement.

"The people have chosen to continue building in Judea and Samaria and the Jordan Valley, and that is the way it should be," said Shlomo Ne'eman, mayor of the Gush Etzion Regional Council and Chairman of the Yesha Council, using Israel's biblical names for the West Bank.