About 430,000 Jewish settlers are living in the West Bank
The Israeli housing ministry has invited tenders for the construction of 100 new homes at settlements in the occupied West Bank.
The houses are to be built at Ariel and El Kana in the northern West Bank, despite international calls for a freeze on settlement activity.
Israel argues its requirement to freeze settlements under the 2003 peace roadmap does not apply here.
Palestinian official Saeb Erakat said the building "sabotaged" peace efforts.
Israel has also announced it will allow the reopening of 20 Palestinian police stations in the West Bank.
A Palestinian spokesman said it would help to boost the security efforts of Palestinian Authority President Mahmoud Abbas.
Earlier, the Israeli army announced that troops had shot dead a leading Palestinian militant at the Balata refugee camp near the West Bank town of Nablus.
He was named as Hani al-Kabi, a local leader of the al-Aqsa Martyrs' Brigades group.
The US and Europe have pressed Israel to halt settlement activity.
The Israeli government argues that it is building new homes on existing settlements, not establishing new settlements.
"This construction... [is] in the framework of the policy of the government because it will be construction inside the built-up area of existing settlement blocks," Israeli government spokesman Mark Regev told AFP.
Palestinians see continued settlement building as a sign of Israeli bad faith in the peace talks being conducted with the Palestinian Authority of Mahmoud Abbas, which runs Palestinian areas of the West Bank.
"We firmly condemn the continuation of settlements," said Mr Erekat.
"Such a decision sabotages the peace process and the negotiations."
All Jewish settlements in the West Bank are considered illegal under international law, though Israel disputes this.
Meanwhile, an Israeli decision to close off the West Bank and Gaza Strip for a week over the Jewish holiday of Passover has come into effect.
Israel says the ban has been introduced for security reasons.