JERUSALEM - Israel has said it has approved the construction of 50 homes in a settlement in the occupied West Bank, despite weeks of pressure from its closest ally Washington.

"The defence ministry has approved the construction of 50 housing units in the settlement of Adam," a statement said.

The decision to build the houses in Adam, north of Jerusalem, came despite repeated US calls for Israel to halt all settlement activity in order to relaunch peace talks with the Palestinians.

The houses will be built for the relocation of some 200 settlers from nearby Migron, one of the largest so-called wildcat outposts -- small settlements which lack Israeli permits.

A defence ministry document says 1,450 units could eventually be built in Adam, but a spokesman insisted only 190 are currently being planned.

Israeli Prime Minister Benjamin Netanyahu has said his right-wing government will not build new settlements in the occupied territories but will not halt "natural growth" expansion of existing settlements either.

That position has put Israel on a collision course with US President Barack Obama's administration, which has demanded a complete halt to settlements and vowed to vigorously pursue the Middle East peace process.

The decision came shortly before Israeli Defence Minister Ehud Barak was to fly to New York to meet US Middle East envoy George Mitchell on Tuesday, after a meeting between Mitchell and Netanyahu was cancelled last week.

On Sunday, Israeli media reported that Barak planned to offer a three-month building freeze in the settlements, excluding existing projects that are nearing completion, as a compromise to the White House demands.

Barak declined to confirm or deny such a plan, telling reporters that the issue "hasn't been fully finalised yet" and that settlements were one of several topics he planned to discuss with the US envoy.

The possible freeze would not apply to settlements in mostly Arab east Jerusalem, which Israel occupied and annexed in 1967 and which the Palestinians have demanded as the capital of their future state.

It would also not cover some 2,000 buildings in West Bank settlement blocs that are currently at an advanced stage of construction, mainly public buildings, Israel's mass-selling Yediot Aharonot newspaper reported on Sunday.

Israelis insist they have a commitment from the administration of former US president George W. Bush permitting some growth in existing settlements. They say the US position was laid out in a 2004 letter from Bush to then Israeli premier Ariel Sharon.

US Secretary of State Hillary Clinton said earlier this month the Obama administration had received no record of any such deal, but Israeli Intelligence Minister Dan Meridor insisted on Monday: "We had an agreement ... (on) freezing settlement activity including natural growth.

"And alongside that there was an understanding, an agreement on the interpretation of what freeze is, and this interpretation is part of the agreement," he told foreign correspondents.

Yediot Aharonot recently reported that about 3,200 new housing units were under construction in the West Bank at the end of 2008.

The presence of more than 280,000 Israelis in more than 120 settlements scattered across the West Bank has long been one of the thorniest issues in the decades-old conflict.

Palestinian president Mahmud Abbas has said he will not hold any talks with Israel until it halts all settlement activity, which the Palestinians say endangers the viability of their future state.

The international community considers all settlements built on land occupied in the 1967 Six Day war to be illegal, and last week the Group of Eight and the Middle East diplomatic Quartet -- the United States, the United Nations, the European Union and Russia -- called for a complete settlement freeze.