AFP - UN chief Ban Ki-moon "condemns" Israel's plan to build new settlement homes in east Jerusalem, and deems all settlements "illegal," his office said.

"The secretary-general condemns the approval of plans for the building of 1,600 new housing units in East Jerusalem by the Israeli Ministry of Interior," a UN statement read.

Ban "reiterates that settlements are illegal under international law... settlement activity is contrary to Israel's obligations under the roadmap, and undermines any movement towards a viable peace process," he added, referring to the internationally sponsored Middle East roadmap to peace.

Israel's interior ministry said earlier it approved construction of 1,600 new housing units in Ramat Shlomo, a Jewish settlement in the mainly Arab eastern sector of Jerusalem.

The controversial move has infuriated Palestinians, who consider settlements to be a major hurdle in long-hobbled attempts to reach a peace accord, and who want occupied east Jerusalem as the capital of their promised state.

It came two days after the Palestinians grudgingly agreed to indirect talks after months of US shuttle diplomacy, and coincided with a trip by Vice President Joseph Biden, the highest-level Obama administration official to visit Israel.

The Israeli decision was also condemned by the United States, with Biden calling it "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."