The White House on Friday condemned Israeli plans to build 450 new settler homes in the West Bank as "illegitimate and counterproductive" to achieving peace.
"We have deep concerns about these highly contentious settlement construction announcements," said White House spokesman Josh Earnest.
"They will have detrimental impacts on the ground, enflame already heightened tensions with the Palestinians and further isolate the Israelis internationally."
The Israeli announcement, which comes just weeks before a March 17 election, further strains relations between the United States and its main Middle Eastern ally.
President Barack Obama's administration has been irked by Netanyahu's acceptance of an invitation to address Congress on Iran in early March.
Obama has said he will not meet Netanyahu during that trip because it is too close to the Israeli vote, when the prime minister will seek re-election.
The White House has called the speech to Congress as a break with protocol.
Israel occupied the West Bank and east Jerusalem in the 1967 war.
Building settlements there is illegal under international law and opposed by the international community as an obstacle to an eventual peace deal with the Palestinians.