WASHINGTON (AFP) - US President Barack Obama told Prime Minister Benjamin Netanyahu on Wednesday of Washington's deep concerns over an Israeli plan to build 2,600 new settler homes in east Jerusalem.

Obama raised the development in face-to-face talks in the Oval Office, White House spokesman Josh Earnest said.

"The United States is deeply concerned by reports the Israeli government has moved forward" with planning for settlements in a "sensitive area" of east Jerusalem, Earnest said. Earnest warned that Israel would send a "very troubling message" by following through with the project.

In noticeably blunt language, Earnest said that the step was contrary to Israel's stated goal of negotiating a permanent final status agreement with the Palestinians.

"This development will only draw condemnation from the international community, (and) distance Israel from even its closest allies," Earnest said, adding that it would also "poison the atmosphere" not only with the Palestinians but with "the very Arab governments" with which Netanyahu has said he wants to build relations.

Earlier, a watchdog group said Israel is to press ahead with the construction of 2,610 settler homes in annexed east Jerusalem. The housing units, which have been slated for construction since 2012 in the neighbourhood of Givat Hamatos, were given final approval last week, Peace Now said in a statement.

Hagit Ofran, spokeswoman for the Israeli non-governmental group, said the government could now publish tenders for the project, but that it would be months before building actually began.