The United States, one of Israel's few allies in Thursday's battle at the world forum, called "counterproductive" the construction blueprint, which included a stretch of land east of Jerusalem that Palestinians fear would bisect much of the West Bank and choke off their access to the holy city.

The Israeli official said Prime Minister Benjamin Netanyahu's conservative government had authorized the construction of 3,000 housing units and ordered "preliminary zoning and planning work for thousands of units in Jerusalem and settlement blocs including Maale Adumim and E1".

Israel froze much of its activities in E1 under pressure from former U.S. President George W. Bush and the area has been under the scrutiny of his successor, Barack Obama.

The official, who did not want to be named, would not elaborate on the plans. But Israeli media said the government saw the settlement expansion as hammering home its rejection of Thursday's upgrade by the U.N. General Assembly of the Palestinians to "non-member observer state" from "entity".

Israel and the United States had opposed the resolution, which shored up the Palestinians' claim on all of the West Bank, East Jerusalem and Gaza Strip, saying territorial demarcation should be addressed in direct peace negotiations.

The Israelis were further incensed by what they deemed an inflammatory U.N. speech by Palestinian President Mahmoud Abbas, and said the upgrade resolution neglected the Jewish state's security and need for its own sovereignty to be recognized.

CENSURE FROM PALESTINIANS, U.S.

Peace talks have been stalled for two years amid Palestinian anger at continued Israeli settlement. The Israelis insist they would keep West Bank settlement blocs under any final accord as well as all of Jerusalem as their capital.

That status for the holy city has never been accepted abroad, where most powers consider the settlements illegal for taking in land captured in the 1967 Middle East war. Palestinians want East Jerusalem, with ancient sites holy to Islam, Judaism and Christianity, as their own future capital.

"While the Palestinians are doing everything possible to keep the two-state solution alive, including with our vote in the United Nations, yesterday, the Israeli government is doing everything possible to destroy it," Palestinian negotiator Saeb Erekat said in response to the new settlement plan.

The White House said the plan could make it harder to bring Israel and the Palestinians back to the negotiating table.

"We reiterate our longstanding opposition to settlements and East Jerusalem construction and announcements," White House spokesman Tommy Vietor said.

"We believe these actions are counterproductive and make it harder to resume direct negotiations or achieve a two state solution," Vietor said. "Direct negotiations remain our goal and we encourage all parties to take steps to make that easier to achieve."

The 193-nation U.N. General Assembly overwhelmingly approved the de facto recognition of the sovereign state of Palestine after Abbas, in his speech, urged members to issue what he said was its long overdue "birth certificate."

Approximately 500,000 Israelis and 2.5 million Palestinians live in the West Bank and East Jerusalem.

Israel withdrew settlers and soldiers from Gaza in 2005 after 38 years of occupation but maintains a blockade of the enclave, which is ruled by the Islamist movement Hamas. Israel says the blockade is necessary to prevent smuggling of weapons to militants there.

An Egyptian-brokered agreement on November 21 that ended eight days of Israeli air strikes on Gaza and cross-border Palestinian rocket attacks called on Israel to ease restrictions on the territory.

(Additional reporting by Matt Spetalnick in Washington; Writing by Dan Williams; Editing by Tom Pfeiffer)