In a strongly worded statement, the State Department said Israel's approval of 300 housing units in the West Bank "is another step towards cementing a one-state reality of perpetual occupation."
Washington has long opposed Israel's policy of building Jewish settlements on land in the West Bank that would be claimed by the Palestinians in any negotiated "two state" peace deal.
In recent weeks, US officials have adopted a more forceful tone with Prime Minister Benjamin Netanyahu's government, accusing it of recklessly accelerating the program despite international concern.
In July, the Middle East Quartet -- a contact group comprising the United States, Russia, European Union and United Nations -- issued a report calling on Israel to halt settlement building.
But since then, Washington says, the practice has only accelerated, with new housing blocks being approved, local administrative boundaries moved and illegal settlements retroactively approved.