The human rights group's annual settlement report highlighted how the issue complicates the chances of resolving the Israel-Palestinian conflict.
Israel has begun building nearly 20,000 settler homes in the occupied West Bank during the past decade of Benjamin Netanyahu's premiership, settlement watchdog Peace Now said Tuesday.
The report said that construction of 19,346 settler homes had started between 2009 - the year that Netanyahu became prime minister for a second time - and the end of 2018.
"The Israeli government is digging the country a pit to fall in," said a Peace Now statement accompanying the report. "Even if the government does not believe that peace can be achieved in the near future, there is no logic to expanding the settlements and making the solution impossible."
The report was published as Netanyahu was on track to begin a fifth term after April's general election and the White House prepared to unveil a peace proposal it has been working on for months.
Details have been kept under wraps but given U.S. President Donald Trump's close alliance with Netanyahu it is unlikely to call for widespread dismantlement of settlements.
Settlement is illegal under international law but has been pursued by every Israeli government since the Jewish state occupied the West Bank in the 1967 Six Day war.
It is widely considered by the international community to be an obstacle to peace and flies in the face of the core Palestinian demand for an independent state alongside Israel.
To rally right-wing voters, Netanyahu said during his election campaign that he would start annexing the West Bank settlements if he was returned to power.
U.S. Secretary of State Mike Pompeo has declined to say if the United States would oppose such a move.
Peace Now spokeswoman Hagit Ofran told AFP that a two-state solution could demand the relocation of about 150,000 settlers. Such a number would be a political impossibility for the right-wing Netanyahu.
Based on aerial photos Peace Now's survey said that 2,100 settler homes were started in 2018. Its report for the previous year counted 2,783.
The reports do not include Israeli-annexed east Jerusalem, the mainly Palestinian sector of the city.
About 630,000 Israeli settlers live in the West Bank and east Jerusalem in tense proximity to three million Palestinians.