Israeli officials say the government has approved the building more than 300 new houses in West Bank settlements.
The US has previously opposed the expansion of settlements, but appears to have shifted position
Officials say the new building will be in the settlements of Har Gilo and Haradar close to Jerusalem.
Last week, Prime Minister Ariel Sharon approved the construction of about
1,000 new homes in four settlements.
A US newspaper has reported that the Bush administration will not oppose the enlargement of major settlements, sparking outrage among Palestinians.
An Israeli newspaper, Yediot Aharonot, also reported that an additional 200 homes had also been approved in the settlements of Adam and Emanuel.
400,000 settlers in West Bank and Gaza (including east Jerusalem)
80% of West Bank settlers live close to Israel's pre-1967 boundary
Most settlements have fewer than 1,000 citizens
The BBC Middle East analyst Roger Hardy says Mr Sharon is using the settlement issue to appease members of his right-wing Likud Party who oppose his plan for a unilateral withdrawal from the Gaza Strip.
Up to now, the Bush administration had opposed all settlement activity, including natural growth of settlements.
That is also the position set out in the roadmap, the peace plan agreed by the diplomatic grouping known as the Quartet - the US, the UN, Russia and the European Union.
But now the Americans appear to have signalled a quiet shift - that they accept the building of new homes within the boundaries of existing settlements.
The policy change has not been formally confirmed.
Analysts say the US seems to be acting partly out of a desire to help embattled Israeli Prime Minister Ariel Sharon.
The shift could also help President George W Bush help firm up the support of Jewish-American and conservative supporters of Israel in the November election.
Palestinian officials have reacted angrily to the apparent shift in the American position.
Palestinian Prime Minister Ahmed Qurei said such a move would destroy hopes for peace.
Mr Qurei said he was waiting for clarification on the US position.
"I can't believe that America is now saying that settlement expansion is all right. This will destroy the peace process," he told reporters.
Settlements are considered illegal under international law, though Israel disputes this.