Palestinian Authority President Mahmoud Abbas strongly condemned the decision, the official Palestinian news agency WAFA said Thursday.
Presidential spokesman Nabil Abu Rudeina, in a media statement quoted by WAFA, said the Israeli move would sabotage the peace process and efforts made by the U.S. administration to move it forward.
A U.N. Human Rights Council report in January said Israeli settlements had taken a "heavy toll" on the rights and sovereignty of Palestinians.
It outlined the consistent violation of Palestinians' rights in what it called a "creeping annexation" by Israel in East Jerusalem and the West Bank.
Palestinians welcomed the report's findings, but Israel, which considers the Human Right Council to be biased, said the report would hurt the peace process.
There are about 250 settlements in the West Bank and East Jerusalem, the report said, all started since Israel seized the lands after the Six Day War in 1967.
Israel's consistently growing presence in East Jerusalem and the West Bank has caused great tension between Israel and the Arab world, including Palestinians. Israel says its presence is needed for security.