U.S. Vice-President Joe Biden, left, talks with Israeli President Shimon Peres during their meeting at Peres's residence in Jerusalem on Tuesday. (Yin Bogu, Pool/Associated Press)

Israel's approval of 1,600 new settlement houses in disputed East Jerusalem undermines the peace process that the United States is trying to revive, U.S. Vice-President Joe Biden said Tuesday.

Biden, who travelled to the Middle East to mediate indirect peace talks between Israeli and Palestinian leaders, said the timing of the announcement 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 Israelis and Palestinians must build an atmosphere to support negotiations, not complicate them.

Moments earlier, President Barack Obama's top spokesman, Robert Gibbs, condemned the announcement from the White House.

Netanyahu 'unaware' of construction

The Interior Ministry announced the construction plans just as Biden was wrapping up a series of meetings with Israeli officials, including Prime Minister Benjamin Netanyahu.

A spokesman for Netanyahu said he was unaware of the construction plan just announced by the Interior Ministry.

Efrat Orbach, an Interior Ministry spokeswoman, said the new homes are to be built in Ramat Shlomo, a neighbourhood for ultra-Orthodox Jews in east Jerusalem. She noted there is a 60-day appeals period, indicating the decision may yet be changed.

But Palestinian negotiator Saeb Erekat said the move was destroying trust needed to go forward with the latest talks, which the two sides agreed this week would take place under the mediation of U.S. envoy George Mitchell.

Israel has annexed east Jerusalem and refuses to restrict building there. The Palestinians and the international community regard the construction as settlement activity, and the Palestinians have said they will not talk directly to Israel unless it completely freezes settlement building.

Construction activity has been a focus of the Obama administration, which has prodded Israel to freeze building of West Bank settlements that swallow up land the Palestinians want for a future state.

But that call came just as Netanyahu took over in Israel, and though the Israeli leader scaled back settlement construction, he would not accept a freeze.

'No space' between U.S. and Israel

Biden's two-day visit also appears aimed at assuaging Israeli concerns that Obama has been less friendly to Israel than his predecessors.

"There is absolutely no space between the United States and Israel when it comes to Israel's security, none at all," Biden told Israeli President Shimon Peres when he was introduced at a meeting in Jerusalem on Tuesday morning.

Biden said he hopes the start of the talks will help allay "that layer of mistrust that has built over the last several years."

"The United States will always stand with those who take risks for peace."

A new peace push by the U.S. is sure to face enormous challenges, including sharp divisions among the Palestinians and a hardline Israeli government seen as unlikely to make wide-ranging concessions.

Polls indicate Israelis have see Obama as less friendly to Israel than previous presidents. Biden's visit seemed aimed at least in part at assuaging some of those concerns, both among Israelis and their U.S. supporters, whose backing is seen as crucial ahead of next November's congressional elections.

The fact the discussions will be held through a U.S. mediator attests to the estrangement between the Israelis and Palestinians, who have been speaking to each other directly, on and off, since the early 1990s.

With files from the CBC