The United States said Tuesday it is "deeply concerned" by Israel's approval of new housing construction in East Jerusalem.

The State Department said in a statement that such "unilateral actions work against efforts to resume direct negotiations and contradict the logic of a reasonable and necessary agreement between the parties." The department also said it raised its objections with the Israeli government.

Last week, an Israeli planning commission approved 930 new housing units in the East Jerusalem neighborhood of Har Homa, which is within what is defined as Jerusalem’s city limits, but is directly adjacent to the Palestinian town of Bethlehem. Actual building is at least two years off.

Alongside its rare rebuke of a close ally, the State Department said Israelis and Palestinians should settle their differences on Jerusalem through negotiation, adding that the United States "will continue to press ahead with the parties to resolve the core issues in the context of a peace agreement."

The State Department's statement was made four days after AFP reported that EU foreign policy chief Catherine Ashton condemned Israel's approval of the new housing units and five days after top Palestinian negotiator Saeb Erekat’s released a statement slamming the Israeli approval.

Ashton said the new move damaged Israel's prospects for peace. "The European Union has repeatedly urged the government of Israel to immediately end all settlement activities in the West Bank, including in East Jerusalem. All settlement activities are illegal under international law,” AFP quoted Ashton as saying in a statement.

"Continued settlement undermines trust between the parties and efforts to resume negotiations. This is especially true with regard to Jerusalem," the EU chief said, adding "I believe there can be no sustainable peace in the Middle East without a two-state solution with the state of Israel and a viable and contiguous Palestinian state living side by side in peace and security."

"Settlement activity damages this prospect," she cautioned.

Talks between Israel and the Palestinians hit a standstill in September of 2010 when Israel resumed settlement building after a nine-month moratorium.

In Erekat’s statement, issued last Thursday, the Palestinian negotiator claimed Prime Minister Benjamin Netanyahu's government is "determined to invest solely in the entrenchment of the occupation, rather than peace."