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Senior Palestinian official Hanan Ashrawi said the move showed Israel was pushing ahead with "their systematic policies of settler colonialism, apartheid and ethnic cleansing, showing a total and blatant disregard for Palestinian human rights".

"Israel is more committed to appeasing its illegal settler population than to abiding by the requirements for stability and a just peace," Ashrawi said.

A spokesman for UN chief Antonio Guterres expressed "disappointment and alarm" at the move.

"The secretary-general has consistently stressed that there is no Plan B for Israelis and Palestinians to live together in peace and security. He condemns all unilateral actions that, like the present one, threaten peace and undermine the two-state solution," Stephane Dujarric said in a statement.

EU foreign policy chief Federica Mogherini said the new settlement building threatens "to further undermine prospects for a viable two-state solution, which remains the only realistic way to fulfil the aspirations of both sides and achieve just and lasting peace."

Israel's security cabinet gave its unanimous backing to the new settlement late on Thursday as what is widely seen as the most right-wing government in Israeli history presses ahead with settlement expansion in defiance of international concern.

US President Donald Trump's administration refrained from criticising the new settlement, but warned that further expansion could undermine peace efforts.

"While the existence of settlements is not in itself an impediment to peace, further unrestrained settlement activity does not help advance peace," a White House official said.

"Going forward ... the Israeli government has made clear Israel's intent is to adopt a policy regarding settlement activity that takes President Trump’s concerns into consideration."

Destroying peace prospects

Senior Palestinian official Saeb Erekat said Israel "continues to destroy the prospects of peace."

He also criticised the UN, European Union and US for not doing enough to punish Israel for continuing to expand settlements in the West Bank.

Peace is not going to be achieved by tolerating such crimes - Saeb Erekat, senior Palestinian official

"Peace is not going to be achieved by tolerating such crimes," he said. 

More than 400,000 Israelis live in existing settlements considered illegal under international law. 

The new settlement will be constructed north of the former wildcat Jewish outpost known as Amona, which was razed in February in accordance with an Israeli High Court order.

Israeli Prime Minister Benyamin Netanyahu had promised to build a new settlement for its residents after their eviction.

"I promised to create a new community and we are going to respect that commitment and create it today," he said ahead of Thursday's security cabinet meeting.

Held captive by settlers

Peace Now said the new settlement's location deep in the West Bank was "strategic for the fragmentation of the West Bank," which Palestinians see as the bulk of their future state. 

"Netanyahu is held captive by the settlers, and chooses his political survival over the interest of the state of Israel," the NGO said, adding it was pushing Israelis and Palestinians closer to "apartheid."

More than 400,000 Israelis live in existing settlements considered illegal under international law

The international community regards all Israeli settlements in the occupied Palestinian territories as illegal and a major obstacle to Middle East peace.

Israel draws a distinction between those it sanctions and those it does not - so-called outposts.

The cabinet also invited tenders for nearly 2,000 new homes in existing settlements and discussed retroactively legalising three outposts, Peace Now said.

Ronen Bergman, senior correspondent for Israel's Yediot Aharonot newspaper, said Netanyahu, who has faced corruption allegations, has been dragged further right to keep his government together.

The far-right pro-settlement Jewish Home party, part of Netanyahu's coalition, is often dictating the government's agenda, he added.

"He has been shifted more and more to the right since being re-elected.

"(Netanyahu) is not calling the agenda, he is chasing the agenda," Bergman told AFP.

The former US administration of Barack Obama was deeply opposed to Israel's expansion of the settlements and in December withheld its veto from a UN Security Council resolution condemning the policy.

But since Trump took office in January, settler leaders have been emboldened by his far less critical stance and Israel has since announced more than 5,500 new homes in existing settlements.

Netanyahu has been in discussions with the Trump administration on how to move ahead with further construction.