Fresh construction for the settlement of Efrat was approved on land that could accommodate around 7,000 housing units, Israel's far-right Defence Minister Naftali Bennett said.
"The building momentum in the country must not be stopped, even for a second," he tweeted.
United States (U.S.) Secretary of State Mike Pompeo plans to visit Israel next week, according to a source, a sign that he is weighing in on a territorial issue that has been a centerpiece of Netanyahu's coalition-building efforts with rival-turned-ally Benny Gantz.
The settlements are considered illegal by most of the international community and are condemned by the Palestinians, who see all the West Bank, which Israel captured in a 1967 war, as part of their future state.
The U.S. has offered to recognize Israeli sovereignty in the West Bank as part of a so-called "deal of the century" for the Israeli-Palestinian conflict that U.S. President Donald Trump unveiled in January.
The plan would let Israel impose sovereignty all the way to Jordan while Palestinians would be granted a sovereign but disjointed and demilitarised entity along with promises of major investment. The Palestinian state's capital would be on the outskirts of Jerusalem, the disputed city that would remain fully under Israeli sovereignty.
The Palestinians say the plan is biased against them, and have boycotted Washington's mediation efforts since it recognized Jerusalem as Israel's capital in late 2017.
"The Trump Administration's Annexation plan endorses everything that the illegal Israeli colonial-settlement enterprise is about: A racist narrative, violations of international law and the perpetuation of the denial of Palestinian rights," Palestinian official Saeb Erekat said.