"I am deeply disappointed by the approval of 942 new housing units in the Israeli settlement of Gilo, east Jerusalem," European Union foreign policy chief Catherine Ashton said in a statement on Wednesday .

The 27-nation EU is also closely watching upcoming plans for settlements on the Mount Scopus Slopes, in Har Homa C and in Pisgat Ze'ev, she said.
"These plans may further damage an already fragile political environment," Ashton said.

Jerusalem city council on Monday gave the green light for 942 new homes in Gilo, a settlement neighborhood in the mainly Arab eastern sector of the city.
Israel considers both sectors of Jerusalem to be its "eternal, indivisible" capital, and does not view construction in the east to be settlement activity.

The Palestinians, however, believe east Jerusalem should be the capital of their future state and are fiercely opposed to the extension of Israeli control over the sector.

"I reiterate that the EU considers that settlement activities in the West Bank, including east Jerusalem, are illegal under international law, undermine trust between the parties and constitute an obstacle to peace," Ashton said.

"The actions taken by the Israeli government contravene repeated and urgent calls by the international community, including the Quartet, and run counter to achieving a peaceful solution that will preserve Israel's security and realise the Palestinians' right to statehood," she said.

"If there is to be genuine peace, a way must be found to resolve the status of Jerusalem as the future capital of two states."