Israel is to invite tenders for the construction of nearly 700 homes in annexed east Jerusalem and the occupied West Bank, days after the European Union slammed its ongoing settlement construction.

According to a housing ministry statement, tenders are to be published for 5,000 homes nationwide, among them 607 units in Pisgat Zeev, a settlement neighbourhood in east Jerusalem, and 92 in Maale Adumim, a large settlement in the central West Bank.

The move comes just days after Israel gave final approval for plans to build nearly 800 homes in another part of east Jerusalem, sparking criticism from European Union foreign policy chief Catherine Ashton, who is expected to visit the region on Wednesday.

Last Thursday, the interior ministry gave final approval to the construction of 797 homes on a hillside west of the east Jerusalem settlement neighbourhood of Gilo, in a move Ashton said she "deeply regrets."

But Israel, which annexed east Jerusalem after the 1967 Six Day War and does not consider construction there to be settlement building, has remained defiant.

"United Jerusalem is Israel's eternal capital," Israeli Prime Minister Benjamin Netanyahu said on Tuesday during a tour of Gilo, with the term "united" referring to both the eastern and western sectors of the city.

"We have the full right to build in it... this is our policy and I will continue to back construction in Jerusalem," he said, reiterating a pledge he made on Sunday.

Housing Minister Ariel Atias also said construction would not be halted in Jerusalem.

"There is natural growth and demand, and construction there cannot be halted," he said in a statement.

The Palestinians want east Jerusalem as the capital of their promised state and adamantly oppose any Israeli attempt to extend its control over the sector.