Israel plans 9,000 new settler homes in occupied east Jerusalem weeks after Trump's 'peace plan'
Peace Now said the housing ministry had a week ago submitted plans to Jerusalem's Municipality to build the settlement units on the site of the former Atarot airport, between two Palestinian neighbourhoods.
It said final approval of the project could take years.
But if built, it would drive "a wedge in the heart of the Palestinian urban continuity between Ramallah and East Jerusalem, thus preventing the establishment of a viable Palestinian state with its capital in East Jerusalem."
It would be the first new settlement in east Jerusalem since a previous government of Prime Minister Benjamin Netanyahu built the Har Homa settlement near Bethlehem in 1997, Peace Now said.
More than 600,000 Jewish settlers live in the occupied West Bank and annexed east Jerusalem, in communities considered illegal under international law.
Peace now said the Atarot plan "also includes the demolition of dozens of Palestinian residential units that were built in the area without permits throughout the years."
Palestinians regularly build without the required permissions because they are unable to obtain them from Israeli authorities.
Jordan, the custodian of Muslim holy sites in Jerusalem, blasted the proposed rail extension as "a flagrant violation of international law".
The announcement came just weeks after a controversial Middle East so-called peace plan unveiled by US President Donald Trump gave a green light for Israel to declare sovereignty over all of Jerusalem as well as settlements and other territory in the West Bank.
The Trump proposal has been rejected by the Palestinians as it cedes large swaths of the West Bank to Israel and puts forward a set of near-impossible conditions for Palestinians to meet.
Meanwhile earlier this month, the United Nations released a list of companies with business ties to Israeli settlements in the occupied Palestinian Territories, prompting outrage from Israeli authorities.
UN High Commissioner for Human Rights Michele Bachelet on Wednesday released a list of 112 companies with activities in Israeli settlements, including major US firms Airbnb, Expedia and TripAdvisor.
The report was ordered in 2016 by the UN Human Rights Council, from which President Donald Trump's administration withdrew the United States in protest at its alleged targeting of ally Israel.
"Its publication only confirms the unrelenting anti-Israel bias so prevalent at the United Nations," Pompeo said in a statement, calling himself “outraged".