The Obama administration says it is "deeply concerned" by Israeli approval of new housing construction in disputed east Jerusalem.
The State Department says such "unilateral actions work against efforts to resume direct negotiations" and the spirit of the peace process. In a statement, the department says it has raised its objections with the Israeli government.
Last week, an Israeli planning commission approved 930 new housing units in the Har Homa neighborhood in east Jerusalem. 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.
Israel captured east Jerusalem in the 1967 Mideast war and claims it as part of its capital. Palestinians hope to establish their future capital there.