Israel's government has approved the building of the first new settlement in 20 years in the occupied West Bank - a move swiftly condemned as an obstacle to peace based on a two-state solution.

The move late on Thursday - considered illegal under international law - was adopted less than a week after the United Nations criticised Israel for not taking any steps to halt settlement building on occupied Palestinian territory, as demanded by the Security Council in a resolution it passed in December.

It also came as thousands of Palestinians gathered on Thursday for annual demonstrations marking Land Day, which commemorate the 1976 killing of six peacefully protesting Palestinians by Israeli forces.

AL JAZEERA'S IMRAN KHAN IN OCCUPIED EAST JERUSALEM: The cabinet's vote wasn't a surprise. We were expecting Prime Minister Benjamin Netanyahu to say something because earlier this year he had to clear the settlement of Amona. Amona is one of the Israeli settlements in the occupied West Bank that was built on private Palestinian land. An Israeli high court said that this was illegal, so Netanyahu had to get rid of the people who lived there and move them on to somewhere else. At that stage, he said by March 31 "I will announce a new settlement for where these people can live", and he's done his part of the deal. Whether this settlement actually gets built or not is a whole other discussion to be had within the Israeli society. It's also something to do with the fact that today is Land Day. Netanyahu is under a lot of pressure from the coalition that helps him govern to build more of these settlements. He's avoided so far by announcing extensions to settlements, but the fact he's announced a new one is going to anger many people within the international community, however, it remains to be seen what the Americans think about this. Trump, at the beginning of the year, had said "it's OK, you can build more settlements", however, he rode that back around March.

The unanimous vote in favour of construction of the new settlement in an area called Emek Shilo, which was announced in an Israeli government statement, drew instant criticism from Palestinian leaders.

"Today's announcement once again proves that Israel is more committed to appeasing its illegal settler population than to abiding by the requirements for stability and a just peace," said Hanan Ashrawi, an executive committee member of the Palestine Liberation Organization.

Ashrawi also said it was "ironic" that on the same day that Palestinians sombrely marked the killing of six Palestinians and the wounding of more than 1,000 others that Israel's government announced the establishment of a new illegal settlement.

Israeli Prime Minister Benjamin Netanyahu first promised the new settlement at Emek Shilo in February, shortly before dozens of Israeli families were evicted from another West Bank settlement called Amona. The eviction came after Israel's Supreme Court said the houses were built illegally on privately owned Palestinian land.

Israel has approved thousands of new homes since Donald Trump was elected US president, but they all have been additions to existing settlements.

There was no immediate reaction from Trump's administration, but the Israeli cabinet's decision came a day after the heads of Arab League states - attending a one-day summit in Jordan - stressed their own continued backing for an independent Palestinian state, demanding a two-state solution to the decades-long Israeli-Palestinian conflict.

Netanyahu effectively dares ICC to come and get him as he is set to approve first new settlement in two decades. https://t.co/K32eVdjfp0 pic.twitter.com/MjaLbj2FO7 — Kenneth Roth (@KenRoth) March 30, 2017

Ghassan Khatib, a political scientist at Birzeit University, called the Israeli cabinet's decision "a very dangerous development" and "a major step on behalf of Israel towards closing the historic opportunity" of a two-state solution.

"Israel is trying to test the seriousness of yesterday's resolution by the Arab summit, and would not have drawn that step without making sure that new US administration would be tolerant with it," he told Al Jazeera.

"It's a challenge not only to the Palestinians, but also to the international community represented by the Security Council that passed a resolution only three months ago against settlement expansion."

The UNSC Resolution 2334, which reaffirmed long-standing positions of the international community, was adopted with 14 votes after the United States abstained in the vote.

The abstention defied pressure from then President-elect Trump, Israel and some US politicians who urged Washington to wield its veto.

The resolution condemned Israel's settlements on Palestinian territory occupied since 1967, including East Jerusalem, saying they had "no legal validity".

It also demanded a halt to "all Israeli settlement activities", saying this "is essential for salvaging the two-state solution".

Ben Jamal, the director of the Palestine Solidarity Campaign, a UK-based pro-Palestinian group, said Israel's announcement was further indication of its determination to ignore world opinion and international law.

"Since the UN Security Council passed Resolution 2334 condemning settlement building as illegal and an obstacle to peace, Israel has passed laws to retroactively legalise the theft of private Palestinian land," he said.

"We are calling on the government to review all of their financial dealings with settlements, and make sure products from illegal settlements are banned from the UK."

Israeli settlements are seen as a major stumbling block to peace efforts as they are built on land the Palestinians see as part of their future state.