Israeli construction vehicles and bulldozers began digging in Jerusalem on Monday morning, in what is believed to be ground work for the building of some 600 new settlement units.

The homes were announced in late February, and are set to be built near the illegal Pisgat Ze'ev settlement and the Palestinian neighborhood of Shu'fat.

The number was reduced from 1,100 to 600, when it was revealed that much of the land was owned privately by Palestinians, the Israeli daily newspaper Haaretz reported at the time.

The latest reports suggest the digging is on a hill between the the Palestinian neighborhoods of Beit Hanina and Shu'fat, beside the Pisgat Ze'ev-Newe Ya'akov settlement. Much of the land designated for the build is Palestinian-owned.

Days after the announcement, US State Department spokesman Philip Crowley said "We've relayed our strong concerns to the government of Israel, that this kind of activity, particularly as we try to relaunch meaningful negotiations is counter-productive and undermines trust between the parties."

The Palestinian Authority maintains that the continued construction of Israeli settlements on lands occupied by Israel since 1967 prevents the creation of a Palestinian state with Jerusalem as its capital.