The United States on Tuesday condemned Israel's approval of 1,600 housing units in a Jewish neighborhood in East Jerusalem, urging both Israel and the Palestinians to build an atmosphere to support peace talks.

"I condemn the decision by the government of Israel to advance planning for new housing units in East Jerusalem," said U.S. Vice President Joe Biden in a statement, adding "this announcement underscores the need to get negotiations under way that can resolve all the outstanding issues of the conflict."

The Israeli Interior Ministry on Tuesday said it has approved the construction of 1,600 new housing units in a Jewish neighborhood in a disputed section of Jerusalem. The neighborhood sits in the section of the holy city the Palestinians claim to be the capital of their future state, widely referred to as East Jerusalem.

The announcement was made when Biden has just held warm talks with Israeli President Shimon Peres and Prime Minister Benjamin Netanyahu on resuming peace talks with the Palestinians, which were stalled in December 2008 when Israel launched a massive military campaign against the Islamic Hamas movement in the Gaza Strip.

"The substance and timing of the announcement, particularly with the launching of proximity talks, is precisely the kind of step that undermines the trust we need right now and runs counter to the constructive discussions that I've had here in Israel," Biden said.

"We must build an atmosphere to support negotiations, not complicate them," he said.

Hours before Biden arrived in Israel on Monday, the Israeli Defense Ministry confirmed that it has given the go-ahead to 112 new houses in a settlement in the West Bank, saying the project, which was already approved by the previous government, did not contradict a promise by the Netanyahu administration on a 10-month- long freezing of settlement construction.

Both projects were made public as U.S. special envoy George Mitchell was also in the region for peace-making efforts. The envoy on Monday officially announced the commencement of Israeli- Palestinian indirect talks after a 15-month hiatus and called upon both sides to refrain from taking moves that might escalate tensions.

At least 450,000 Israelis live in some 100 settlements in the West Bank and East Jerusalem.

Jewish neighborhoods in East Jerusalem, captured by Israel in 1967 and later annexed, are considered by the international community as Israeli settlements and one of the main obstacles to the Israeli-Palestinian peace process.

The status of Jerusalem remains one of the core issues in the Israeli-Palestinian conflict. Israel's annexation of East Jerusalem has not been internationally recognized, and the Palestinians want East Jerusalem to be the capital of a future Palestinian state.

"The United States recognizes that Jerusalem is a deeply important issue for Israelis and Palestinians and for Jews, Muslims and Christians. ... Unilateral action taken by either party cannot prejudge the outcome of negotiations on permanent status issues," said Biden.

U.S. President Barack Obama and his administration have been exerting efforts to pressure on the Israeli government and the Palestinian National Authority (PNA) to resume the talks and had a plan of reaching a permanent peace agreement that leads to the establishment of an independent Palestinian state within two years.

PNA Chairman Mahmoud Abbas insists that the talks would not resume until the Israeli government totally freezes the Jewish settlement construction in the West Bank, while the Israeli side accuses the PNA of setting preconditions for the peace talks and claims to ensure the "natural growth" of the Jewish settlements.

In a U.S.-pressured turn, the Palestinian leadership on Sunday gave Abbas the greenlight to conduct indirect talks with Israel for four months. Yet they meanwhile reiterated that Israel must totally freeze settlement expansion before any possible resumption of direct talks.