Israel's Labour Party may quit the ruling coalition over the decision to build 1,600 settler homes in annexed Arab east Jerusalem, Agriculture Minister Shalom Simhon warned on Thursday.
"Members of the Labour Party have more and more difficulty in taking part in a coalition government that they joined with the purpose of relaunching the peace process with the Palestinians," Simhon told army radio.
"The anger of (US Vice President Joe) Biden is justified. A grave error has been committed (by Israel) and there is a price to pay," he added.
Israel's interior ministry on Tuesday said it had approved the construction of 1,600 new housing units in Ramat Shlomo, a Jewish settlement in the mainly Arab eastern sector of Jerusalem.
The controversial move has infuriated Palestinians, who consider settlements to be a major hurdle to a peace accord, and who want occupied east Jerusalem as the capital of a future state.
The news also sparked an angry statement from Biden, on a visit to Israel and the Palestinian territories, denouncing the move.