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Israel's government on Sunday approved the construction of 31 settler homes in Hebron, the first such green light for the flashpoint occupied West Bank city since 2002, a cabinet minister said.

Construction permits were agreed in October last year but needed the government's approval, according to the Peace Now NGO which monitors settlement construction in occupied territory.

Around 16 different Israeli government ministries will allocate $6 million for the construction of 31 homes, a public park, two kindergartens and a day care centre, Israeli media reported.

Israeli Defence Minister Avigdor Lieberman, who himself lives in a settlement in the occupied West Bank, praised the decision.

The settler homes are "yet another important milestone in the extensive activity we are leading to strengthen settlement in Judea and Samaria", he said, using the Jewish biblical term for the West Bank.

Around 800 notoriously hard-line Israeli settlers live in Hebron's Old City under the protection of Israeli military forces, surrounded by more than 30,000 Palestinians.

Israeli military checkpoints, turnstiles and CCTV cameras control the movement of Palestinians in and out of the area.

Hebron is home to some of the most important religious sites for Muslims and Jews outside of Jerusalem, including the Ibrahimi Mosque, or Cave of the Patriarchs, believed to be the burial site of Abraham.

More than 600,000 Israeli Jews live in settlements illegal under international law in the occupied West Bank and East Jerusalem, territories seized during the 1967 war. 

Agencies contributed to this report