Israel has authorized the construction of 3,000 more housing units in occupied East Jerusalem and the West Bank.
It is also speeding up the processing of 1,000 planning permissions.
The Palestinian Authority has said it will not return to peace talks without a freeze in settlement building.
The decision comes a day after a vote at the UN General Assembly upgraded the Palestinians’ status at the UN to that of non-member observer state.
According to the Israeli Haaretz newspaper, some of the new units will be between Jerusalem and the settlement of Maaleh Adumim.
Plans to build settlements in the area, known as E1, are strongly opposed by Palestinians, who say the development will cut the West Bank in two, preventing the creation of a contiguous Palestinian state.
The move is a first indication of Israeli anger, less than 24 hours after the vote on Palestinian status was held at the UN.
The Palestinians may well have been expecting this – or something like it – but it is a reminder that the gulf between the two on the settlement issue remains huge.
Earlier this month, a paper by the Israeli foreign ministry described the Palestinians’ pushing for the vote as “crossing a red line that will require the harshest Israeli response”.
About 500,000 Jews live in more than 100 settlements built since the occupation of the West Bank and East Jerusalem. The settlements are considered illegal under international law, though Israel disputes this.
Earlier on Friday, Israeli government spokesman Mark Regev said the UN vote was “negative political theatre” that would “hurt peace”.
The General Assembly voted by 138-9 to recognize the Palestinians as a non-member observer state, with 41 states abstaining.
The Palestinians can now take part in UN debates and potentially join bodies like the International Criminal Court (ICC).
Palestinian President Mahmoud Abbas said it was the “last chance to save the two-state solution” with Israel.
Two decades of on-off negotiations between Israel and the Palestinian Authority (PA) in the West Bank have failed to produce a permanent settlement, with the latest round of direct negotiations breaking down in 2010.
In January, several months of indirect “proximity talks” ended without any progress.
Palestinian negotiators insist that the building of Jewish settlements on occupied land must stop before they agree to resume direct talks.
Their Israeli counterparts say there can be no preconditions.
Mahmoud Abbas was much criticized by many Palestinians for remaining on the sidelines of the conflict between the militant Hamas movement and Israel earlier this month in Gaza.