White House Press Secretary Josh Earnest called the announced construction a setback to peace in the region and suggested the Israeli government had broken its word.
"We did receive public assurances from the Israeli government that contradict this announcement," he said. "I guess when we're talking about how good friends treat one another, that's a source of serious concern as well."
The "public assurance" came in Israeli Prime Minister Benjamin Netanyahu's June 2009 speech at Bar Ilan University where he said, "The territorial issues will be discussed in a permanent agreement. Till then we have no intention to build new settlements or set aside land for new settlements."
Earnest said the construction, which was announced last week, would "undermine the pursuit of peace."
Israeli officials have characterized the planned construction as an expansion of an existing settlement, and have said it would provide housing for residents of Amona, a West Bank outpost that is supposed to be evacuated and razed later this year.
But in a lengthy statement Wednesday, US State Department spokesman Mark Toner said the construction amounts to the creation of a new settlement.
"This settlement's location deep in the West Bank, far closer to Jordan than Israel, would link a string of outposts that effectively divide the West Bank and make the possibility of a viable Palestinian state more remote," Toner said in the statement, which used diplomatically extreme language saying United States officials "strongly condemn" the Israel move.
He said the timing of Israel's announcement -- shortly after the US and Israeli agreed on a multi-billion dollar defense agreement, and days after President Barack Obama attended the funeral of former Israeli President Shimon Peres -- was "deeply troubling."
"It is disheartening that while Israel and the world mourned the passing of President Shimon Peres, and leaders from the US and other nations prepared to honor one of the great champions of peace, plans were advanced that would seriously undermine the prospects for the two-state solution that he so passionately supported," Toner said.
A statement from Israel's Foreign Ministry said the additional housing was not a new settlement.
"The 98 housing units approved in Shilo do not constitute a 'new settlement,' " the statement said. "This housing will be built on state land in the existing settlement of Shilo and will not change its municipal boundary or geographic footprint. The units are intended to provide a housing solution for the residents of Amona who must leave their homes in accordance with the demolition order issued by Israel's High Court of Justice."
The statement added that Israel remained committed to a "solution of two states for two peoples."
Saeb Erekat, secretary general of the Palestine Liberation Organization, decried the Israeli plan in a statement.
"Israel continues to impede international efforts to achieve peace in Palestine and the region amidst the complete inaction by the international community to hold Israel accountable for the crimes it continues to commit against the land and people of Palestine," he said.