Plans for a new housing project in a Jewish neighborhood in East Jerusalem have angered Palestinians and Americans, left a red-faced Israeli prime minister and forced a senior Israeli government minister to make a public apology.

The 16,000 housing units scheme was approved by the regional planning authority on Tuesday, when the United States Vice President Joe Biden was in the city to give his backing to indirect Palestinian-Israeli peace talks that were formally announced on Monday.

The approval was immediately slammed by the U.S.

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

Palestinian President Mahmoud Abbas also criticized the decision. "The Israeli settlement activities threaten these negotiations," he told a joint press conference with Biden on Wednesday in Ramallah.

Local analysts believe the incident, whether deliberate or not, once again shows the inconsistency of Israeli government and would even strangle the peace talks before they begin.

"Bad timing"

The idea is for the homes to be added to the existing Jewish neighborhood Ramat Shlomo, a religious area not known for strong hawkish political sentiment.

Israeli Interior Ministry told Xinhua the construction would take place to the south and east of Ramat Shlomo, close to another Jewish neighborhood and into nearby woodland.

A ministry spokeswoman said the buildings would be erected "a long way" from the nearest Arab community.

However, the project is across the green line into East Jerusalem, which the Palestinians deem as the capital of their future state. Any such acts by Israel are seen by the Americans and Arabs as highly provocative and could derail the peace process.

Interior Minister Eli Yishai apologized for the disturbances on Wednesday, saying that he was uninformed of the plan.

He told local media the meeting of planning authority was scheduled weeks ago and it was merely a case of poor timing that the discussion was held while Biden was in the country.

Former dovish Israeli lawmaker Naomi Hazan said she has no idea whether the timing was malicious but it was most certainly not helpful.

"If this was intentional then it was stupid. If it was unintentional then it is extremely confusing. Either way it's hard to swallow," said Hazan, who now heads the School of Government and Society and the Tel Aviv-Jaffa Academic College.