The United States urged Israel on Wednesday to halt a plan that would approve new construction in a contentious Jerusalem neighborhood, saying that such a move would harm U.S. efforts to thwart the Palestinian bid for statehood at the United Nations.

The Jerusalem District Planning Committee announced late last month that it would approve the construction of 1,100 new housing units in Gilo, despite past U.S. objections concerning any work that would expand the neighborhoof further beyond the Green Line.

The proposal would allot 20 percent of the units in the neighborhood to young couples, in compliance with a directive g8iven by Interior Minister Eli Yishai. The plan also includes the construction of a boardwalk, public structures, and a commercial center.

U.S. envoy to Israel, Dan Shapiro, met with Yishai on Wednesday, and urged him to shelf the Gilo construction plan, warning it could push international support in favor of the Palestinians in their move for UN recognition.

Yishai reportedly rejected Shapiro's request, saying that construction in Jerusalem has never stopped - even during left-wing governments - and that it would not stop now.

Israel's plan for Gilo has already drawn considerable international criticism. Earlier this month, German Chancellor Angela Merkel took Prime Minister Benjamin Netanyahu to task over the move, precipitating an unprecedented diplomatic crisis.

A senior Israeli official said the plan greatly angered Merkel, after she had enlisted massive support of Israel over the past few weeks to help in thwarting a Security Council vote approving Palestinian membership in the United Nations.

Senior German officials told their Israeli counterparts that Merkel was "furious" and "does not believe a word [Netanyahu] says."

At Netanyahu's request, Merkel had also put major pressure on Palestinian President Mahmoud Abbas to accept the Quartet's initiative and renew peace talks immediately, the Israeli official said, adding that Germany may now reconsider and support upgrading the PA's status to that of a non-member state in the UN General Assembly.

Netanyahu rejected criticism against the construction plan, saying that Gilo is not a settlement, but rather a Jerusalem neighborhood five minutes from the center of the capital. He noted that all Israeli governments built in such neighborhoods.