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US Vice President Joe Biden was meeting with Palestinian leaders on Wednesday as his bid to bolster new peace talks was marred by Israel's approval of settlement expansion in east Jerusalem.

Criticism of Israel's green light for the construction of 1,600 new settler homes in east Jerusalem mounted on Wednesday as Biden was to meet Palestinian president Mahmud Abbas and prime minister Salam Fayyad in the West Bank political capital Ramallah.

Earlier in the morning, Biden held talks in Jerusalem with former British prime minister Tony Blair, the representative of the Middle East diplomatic Quartet which is made up of the European Union, the United States, the United Nations and Russia.

The settlement issue was certain to dominate the meetings in Ramallah which Biden had hoped would serve to boost indirect talks Israel and the Palestinians have agreed to hold after a 14-month hiatus in peace negotiations.

Abbas already telephoned Arab League chief Amr Mussa to call for "urgent policy measures" in response to "the escalating Israeli provocations," his office said without elaborating.

Israel's announcement drew criticism from Biden, from the UN chief, from the Palestinians and even from the office of Israel's defence minister.

The Israeli announcement came just two days after the Palestinians grudgingly agreed to indirect talks after months of US shuttle diplomacy and coincided with Biden's meeting with top Israeli officials.

Biden showed his displeasure by showing up 90 minutes late for a dinner at Israeli Prime Minister Benjamin Netanyahu's residence on Tuesday night.

"I condemn the decision by the government of Israel to advance planning for new housing units in east Jerusalem," Biden said in a statement.

"The substance and timing of the announcement, particularly with the launching of proximity talks, 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."

UN chief Ban Ki-moon, for his part, reiterated that "settlements are illegal under international law."

Chief Palestinian negotiator Saeb Erakat said he welcomed reactions by "the US administration and the international community which condemn the Israeli decision to build settlement housing units in East Jerusalem."

The Palestinian Authority called the Israeli decision dangerous and said it will hinder the negotiations."

"We consider the decision to build in east Jerusalem to be a judgment that the American efforts have failed before the indirect negotiations have even begun," Palestinian Authority spokesman Nabil Abu Rudeina told AFP.

The Palestinians see east Jerusalem as the capital of their promised state.

Even the office of Israeli Defence Minister Ehud Barak on Wednesday blasted the announcement.

"The entourage of Defence Minister Ehud Barak expresses its anger after the unwarranted announcement which affects peace negotiations with the Palestinians -- negotiations of the highest interest for Israel," his office said in a statement.

Israel on Monday had already given the go-ahead for 112 new homes in a West Bank settlement in an exception to a partial moratorium on settlement construction announced in November.

The moratorium does not include east Jerusalem, which Israel seized in the 1967 war and later annexed in a move not recognised by the international community.

Before the spat over settlement expansion, Biden reassured Netanyahu of Washington's "absolute, total, unvarnished commitment to Israel's security" and of its determination to stop the Jewish state's arch-rival Iran getting atomic arms.

He said he was "very pleased" with the decision to hold new Middle East talks, despite deep scepticism about their prospects.

But in a statement later, Biden called on Israel to "build an atmosphere to support negotiations, not complicate them."

Washington has pushed for months to have both sides resume talks, but direct negotiations have been on hold since Israel launched a devastating 22-day offensive in the Hamas-ruled Gaza Strip in December 2008.

AFP