A settlement watchdog group said Sunday Israel is moving ahead with new construction of hundreds of homes in a strategic east Jerusalem settlement that threatens to cut off parts of the city claimed by Palestinians from the West Bank.

The group, Peace Now, said the Israel Land Authority announced on its website Sunday that it had opened up tenders for more than 1,200 new homes in the key settlement of Givat Hamatos in east Jerusalem.

The move may test ties with the incoming administration of President-elect Joe Biden, who is expected to take a firmer tack against Israeli settlement expansion after four years of a more lenient policy under President Donald Trump, who has largely turned a blind eye to settlement construction.

The approval of the 1,200 homes is a further setback to dwindling hopes of an internationally backed partition deal that would enable the establishment of a Palestinian state alongside Israel.

The Palestinians along with critics of Israel's settlement policy say construction in the Givat Hamatos settlement would seal off the Palestinian city of Bethlehem and the southern West Bank from east Jerusalem, further cutting off access for the Palestinians to that part of the city.

"This is a continuation of the current Israeli government policy in destroying the two-state solution," said Nabil Abu Rdeneh, a spokesman to Palestinian President Mahmoud Abbas.

Sunday's development comes as Secretary of State Mike Pompeo is set to travel to the region this week, where he is expected to visit an Israeli settlement in the West Bank— a stop previous U.S. secretaries of state have avoided. Palestinian officials, who have cut off ties with the Trump administration over its policies in favour of Israel, have denounced Pompeo's planned visit. Palestinian Prime Minister Mohammad Shtayyeh tweeted on Friday that this was a "dangerous precedent" that legalizes settlements.

Brian Reeves, a spokesman for Peace Now, said the move Sunday allows contractors to begin bidding on the tenders, a process that will conclude just days before Biden's inauguration. Construction could then begin within months.

(With input from agencies)