Israeli housing minister Zeev Boim says tenders will soon be issued for construction of more than 1,000 new homes for Jews in East Jerusalem.
Palestinians say settlements cut the West Bank from East Jerusalem
Israel annexed the area in 1967 and has continued settlement activity despite a recent freeze on settlements on other occupied territory in the West Bank.
The international community regards such building as illegal. Palestinians want East Jerusalem as their capital.
Mr Boim said building continued within all Jerusalem's municipal boundaries.
He added that what had been portrayed as delays in construction in East Jerusalem "are in fact final stages of coordination" with the municipal authorities.
Israel announced two months ago that it would build 350 new flats in the Har Homa settlement, a move that soured fresh efforts to reach an Israeli-Palestinian peace deal before the two sides had even met.
Mr Boim said there would be an additional 370 new residences in Har Homa, known as Jabal Abu Ghneim in Arabic, and that bids would be issued for 750 more in Pisgat Zeev.
"We condemn these Israeli declarations, and once again we ask the Israeli government to give peace a chance by stopping all settlement activity," Palestinian negotiator Saeb Erekat said.