Israeli Housing Minister Uri Ariel has invited bids for 1,500 new homes in Jewish settlements in retaliation for a new Palestinian government backed by Hamas, reports said on Thursday.
Of the new homes, 400 will be in Israeli-annexed east Jerusalem with the rest elsewhere in the occupied West Bank, the online edition of Haaretz newspaper reported.
Ariel said it was "an appropriate Zionist response to the terrorist Palestinian government," the paper reported.
"Israel has the right and duty to build throughout the entire country," said the minister, who is a member of the far-right Jewish Home party which is fierce champion of the settlements and opposes a Palestinian state.
The announcement comes amid Israeli anger at its US ally's decision to work with the new merged administration for the West Bank and Gaza formed by Palestinian president Mahmud Abbas with the support of Israeli foe Hamas.
On a lightning visit to Israel's northern neighbour Lebanon on Wednesday, Secretary of State John Kerry defended the US decision.