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The US ambassador to Israel raised eyebrows on Thursday by saying that Israel occupies a fraction of the West Bank - just two percent - and that settlements there are part of the Jewish state proper.

David Friedman's comments were met with anger and ridicule, as Palestinians remain at odds with decades of US policy in the Middle East.

"They (Israelis) are only occupying 2 percent of the West Bank," Friedman said in an interview with the Israeli news site Walla.

He refrained from answering when asked if settlements would be removed in a peace agreement with the Palestinians.

"I think the settlements are part of Israel," he said.

Israel occupied the West Bank during the 1967 war.

The Palestinians have limited autonomy in 40 percent of the area, with Israel in full control over the remaining 60 percent.

Palestinians demand the West Bank as part of a future state, and the international community backs this vision and views Israeli settlements there as illegal.

"Obviously, there is important security considerations to those settlements, there's important nationalistic, historical and religious significance to those settlements and I think the settlers view themselves as Israelis, and Israel views the settlers as Israelis," Friedman said.

Nabil Shaath, an aide to Palestinian President Mahmoud Abbas, responded in a video clip on Twitter that the US ambassador had displayed "absolute ignorance of facts of law and of the position of the United States".

Friedman's remarks are "very bad news for the future of any American attempt to make peace in the Middle East," Shaath added.

Senior Palestinian negotiator Saeb Erekat called Friedman's comments "false and misleading". He said in a statement that "such positions undermine ongoing efforts toward achieving a just and lasting peace between Israel and Palestine," based on 1967 borders.

Friedman is a member of President Donald Trump's team spearheading efforts to restart Israeli-Palestinian peace talks.

Friedman, Trump's former bankruptcy attorney, was appointed ambassador earlier this year, a move that was opposed by Democrats and some Jewish groups because of donations to Israeli settlements, opposition to Palestinian statehood and vocal support for hard-line Israeli government positions.

Earlier this year, Friedman's 24-year-old daughter Talia was granted Israeli citizenship. She left the US and immigrated to Israel in August, along with more than 200 immigrants from North America. They were greeted by Friedman upon their arrival to Israel.

Friedman told Israeli media that he was proud of his daughter. He said that "she loves Israel, we all love Israel. Our whole family loves Israel".

Agencies contributed to this report.