Palestinians threatened yesterday to take Israel to the International Criminal Court over the construction of about 2,610 homes in the first new Jewish settlement in east Jerusalem for 15 years.

The unprecedented legal action may be open to Palestine after its recognition by the United Nations last month as a non-member observer state.

Their threat follows the approval yesterday by the Jerusalem municipal committee of construction of a new settlement in a hilltop area in south-east Jerusalem known as Givat HaMatos.

The site is mostly empty except for several dozen rundown trailer homes inhabited by Israelis unconnected to the settlement enterprise, and building new homes would establish a new permanent neighbourhood, according to the Israeli anti-settlement group Peace Now. The group said the site would be the first Jewish settlement in east Jerusalem since Har Homa in 1997, while Benjamin Netanyahu was in his first term as prime minister. He is now in his second term and targeting a third in elections next month.

Mohammed Shtayyeh, who was the Palestinian Authority's special envoy for the UN bid, warned yesterday: "The intensification of settlement activity and all the Israeli actions, from killings to arrests, are pushing us to accelerate our recourse to the International Criminal Court."

Hanan Ashrawi of the Palestine Liberation Organisation's executive committee said the Givat HaMatos plan was "extremely dangerous". "Israel is defying and provoking the international community as though it wants to punish everyone who voted in favour of a Palestinian state at the UN."

Ms Ashrawi said Palestinian officials were weighing several actions to take against Israel, including "judicial accountability". She declined to say in which international legal body such moves may be carried out.

With their new UN status, the Palestinians may have access to bodies such as the International Criminal Court in The Hague, where they can file complaints related to settlement construction - viewed as illegal by the international community - and other offences.

Also yesterday, the Israeli housing ministry gave final approval for about 1,000 new homes in West Bank settlements, some deep inside the Israeli-occupied territory required by Palestinians as part of a future independent state.

The two approvals came two days after Israel gave the green light for the construction of 1,500 new homes in the east Jerusalem settlement of Ramat Shlomo, a move that drew an unusually strong rebuke from the United States, Israel's staunchest ally, and from the European Union.

Anti-settlement activists and Palestinian leaders say the Givat HaMatos construction would be especially damaging to the creation of a Palestinian state because it blocks access to east Jerusalem from the southern parts of the West Bank. The Palestinians view east Jerusalem as the capital of their future state, which they also want to include the West Bank and the Gaza Strip.

Mr Netanyahu was adamant yesterday about constructing homes for settlers in east Jerusalem despite international criticism. At a meeting with foreign ambassadors, he said: "Jerusalem has been the capital of the Jewish people for 3,000 years. Imagine that you would limit construction in your own capital, it doesn't make sense."

Mr Netanyahu, who commentators say is vying for more right-wing support with the settlement construction plans ahead of the election, said Israel will "build in Jerusalem for all its residents, this is something that has been done by all previous governments and this is something that my government will continue to do".

Hagit Ofran, director of the settlement watch project at Peace Now, said the Givat HaMatos plan was one of the most damaging for the future creation of a Palestinian state, along with this month's announcement to advance building in the so-called E1 corridor near Jerusalem.

Ms Ofran said construction would complete the isolation of east Jerusalem from the southern areas of the West Bank. It would especially isolate the east Jerusalem Palestinian village of Beit Safafa, which is already surrounded by the Israeli settlements of Har Homa and Gilo, and hinder more than 10,000 inhabitants from reaching the West Bank city of Bethlehem.

"Beit Safafa will be an enclave inside Israel without a connection to the West Bank. In effect, you will not have Palestinian continuity from the West Bank to all the Palestinian neighbourhoods of east Jerusalem," Ms Ofran said.

The plan's approval would now be followed by the issuing of construction tenders, Ms Ofran said, a process that could take several months to a year.

Sami Ershied, a lawyer and activist from Beit Safafa, said the village's residents would now have little possibility to mend an acute housing shortage in the community, which he said needs at least 600 more homes for young families.