Israel is moving forward with plans for more than 1,000 new homes in two West Bank settlements, a watchdog said on Thursday in a move denounced by the Palestinians as an "abortion" of US peace efforts.

Details of the plans emerged as US Secretary of State John Kerry makes an intensive effort to rekindle dormant peace talks, with Israel's settlement building a key sticking point.

The Peace Now settlement watchdog said plans to build 538 new homes in the northern settlement of Itamar and to legalise 137 existing units there were submitted to regional authorities this week for review.

Itamar is a relatively small, isolated settlement southeast of Nablus and surrounded by Palestinian villages. If approved, the plans would enlarge Itamar almost five-fold.

Also submitted for review were plans for 550 homes in Bruchin, of which 52 of them have already been built, said Peace Now's Hagit Ofran.

Bruchin is a former wildcat outpost which was retroactively authorised in April in a decision that brought a statement of "concern" from EU foreign policy chief Catherine Ashton.

The plans were first made public in The Jerusalem Post and Haaretz newspapers.

Ofran said that while the Itamar expansion had been expected, the scope of the planned building at Bruchin came as a surprise.

"In Bruchin there are about 50 permanent homes and another 50 mobile homes," she told AFP.

"I didn't know that they were going to propose enlarging the settlement tenfold," she said.

The Palestinians lambasted the move as a "serious challenge" and demanded a response from Washington, the European Union and the international community.

"We consider these new decisions over Israeli settlements in the West Bank to be an abortion of the US administration's efforts," snapped Nabil Abu Rudeina, spokesman for Palestinian president Mahmud Abbas.

"This is a serious challenge and abortion of the efforts of Kerry," he told AFP by phone from Jordan.

"This policy of settlement building will not lead to peace, but to tension and instability in our region and the world," he said.

Similar remarks were made by Palestinian foreign minister Riyad al-Malki who discussed US peace efforts with British foreign office minister Alistair Burt on Wednesday.

"Netanyahu is responding to Kerry's efforts by increasing illegal settlement activities" he said.

"Settlement building is killing the two state solution."

Kerry had been expected to visit the region this week but the State Department said he was postponing the trip to focus on talks about Syria.

US officials insist Kerry remains fully engaged in his efforts and say he plans to reschedule his trip as soon as possible.

But the top US diplomat has warned he is not prepared to make endless futile trips, urging both Israeli Prime Minister Benjamin Netanyahu and Abbas to make the "tough decisions" needed to restart talks frozen since 2010.

Abbas has refused to sit down unless Israel halts its settlement construction on land the Palestinians want for a future state.

On Monday, Netanyahu told a parliamentary committee Israel was building in the West Bank and would continue to do so.

He said that keeping hold of the major settlement blocs that house most of the 360,000 Israelis living in the occupied West Bank outside annexed Arab east Jerusalem would not prejudice the outcome of peace talks.

"We need to be smart not just right," Netanyahu told MPs.

"Settlement in the blocs will not significantly affect the ability to reach an agreement."

He has said before that he intends to keep those areas under Israeli rule, presumably leaving open the option of withdrawing from less built-up areas.

In March 2011, a family of five living in Itamar, including a three-month-old baby, were stabbed to death by two Palestinians in an attack that drew international condemnation.

Since then, settler leaders have been pushing for the settlement to be expanded.

Haaretz said no planning permission had ever been granted for the settlement but that, in the wake of the killings, the government sought to give it an official seal of approval.