Israel has picked contractors for 486 new homes in a settlement in annexed Arab east Jerusalem, officials said on Wednesday, days after approving hundreds of new homes in the West Bank.

"We published the winner of the bids," a spokesman for the Israel Lands Authority said.

He was clarifying an earlier statement that said the tendering process had been reopened.

Tenders were first invited in October 2008 but authorities rejected all the bids because of pricing disagreements. Authorities last month reversed the decision following an appeal by companies that had tendered.

On Monday, Israel authorised 455 new housing units to be built in the occupied West Bank, defying international criticism that the move could jeopardise any revival of stalled Middle East peace talks.

Israel had said it would approve a burst in construction before considering a US-demanded halt to settlement activity.

The international community considers Israeli settlements in all of the West Bank including east Jerusalem to be illegal and a major impediment to a Middle East peace deal. Around half a million Israeli settlers already live in the territory.

Wednesday's announcement comes just days before US Middle East envoy George Mitchell is due to return to the region.