Palestinians have said that continued Israeli settlement in occupied areas near Jerusalem will leave it with no choice but to take Tel Aviv to the International Criminal Court (ICC) in the Hague.

Riad Malki, the Palestinian foreign minister, said on Wednesday his government's decision will largely depend on what the Israelis do with the so-called "E1" area outside the Arab suburbs of East Jerusalem.

Malki said allowing Jewish settlers into the so-called E1 zone would be "trespassing the red lines".

The Palestinians are "absolutely not going to tolerate any construction in that particular area", Malki told reporters after addressing a UN Security Council meeting on the Middle East conflict.

"We will wait to see how Israel will react from now on, especially after the formation of the new government," he added.

E1 is one of the occupied areas where Israeli Prime Minister Binyamin Netanyahu's outgoing government has authorised thousands of new settlement homes.

The Palestinians have previously suggested that bringing their various disputes with Israel to the Hague-based court was an option, but Malki's remarks on Wednesday were the most direct threat his government has made against the Jewish state to date.

The Palestinians are yet to join the ICC, which prosecutes charges of genocide, war crimes and other major human rights violations. They must first apply to join the court, and once a member they could refer Israel for investigation.

The Palestinians became eligible to join the ICC after the United Nations General Assembly upgraded the Palestinians' status at the world body in November last year from "observer entity" to "non-member state," a decision that was widely seen as a de facto recognition of an independent Palestinian state.

After the November 29 vote - on the 65th anniversary of the adoption of UN resolution 181 that partitioned Palestine into separate Jewish and Arab states - Israel announced it would build 3,000 more settler homes in the West Bank and East Jerusalem, which are areas the Palestinians want for a future state, along with Gaza.

E1 covers about 12 square kilometres. It is considered particularly important because it does not only jut into the narrow "waist" of the West Bank, but also backs onto East Jerusalem, where Palestinians want to establish their capital.

Approximately 500,000 Israelis and 2.5 million Palestinians live in the West Bank and East Jerusalem.

The United Nations deems all Israeli settlements in the West Bank to be illegal.