Israeli authorities on Monday approved a request for 130 new Jewish homes on the outskirts of annexed east Jerusalem, drawing an immediate protest from Palestinian officials.

The Jerusalem municipal council approved a request that would rezone an area in the settlement of Gilo, near Bethlehem, allowing residential construction on a plot of land originally designated for a hotel.

Elie Isaacson, spokesman for Jerusalem Mayor Nir Barkat, said the rezoning decision was part of a plan to increase housing in the Holy City.

"The municipality of Jerusalem will continue to build in all areas of the city, both for Jews and for Arabs, according to the overall plan, likewise in the neighborhood of Gilo," he told AFP.

The decision, which must also be approved by a district council, comes as Israel and the United States wrangle over the terms for a new freeze on Jewish settlement in the West Bank.

The expiration in September of a previous 10-month freeze on such construction led to the breakdown of direct peace talks between Israel and the Palestinians.

President Mahmoud Abbas has said he will not return to talks without a new freeze that includes a halt to Jewish construction in east Jerusalem, which the Palestinians want for the capital of their promised state.

But Isaacson said the new housing did not represent a change in Israeli policy and building in the neighborhood was necessary.

"The government of Israel and the municipality of Jerusalem have not changed their position for 40 years, as far as we know, and there is no freeze in Jerusalem," he said.

"New building in Jerusalem is critical to the development of the city, to give young people and students the ability to live and buy apartments in Jerusalem."

Chief Palestinian negotiator Saeb Erekat quickly denounced the decision, saying Israel was pushing "its agenda to further isolate Bethlehem from occupied east Jerusalem."

"It seems that Israel has begun its annual tradition of 'Christmas gifts' to the people of Bethlehem," he said in a statement, adding that "last year's 'gift' was the expansion of [settlement] Har Homa, also on Bethlehem's land."

"Apparently, every December, Israel pushes on its agenda to further isolate Bethlehem from occupied east Jerusalem."

Erakat also disputed Israel's characterization of Gilo as a neighborhood of Jerusalem, and said the quarter's expansion represents "an existential threat to the two-state solution."