Israel is secretly pushing ahead with plans to build thousands of homes in an area of the occupied West Bank that could seriously harm any hopes of a two-state solution, according to a report from an Israeli NGO.

The Peace Now group says it has obtained official documents through Israel's freedom of information laws that show the housing ministry secretly hired architects plan homes in the E1 area of the West Bank, despite the project's cancellation in 2013 under international pressure.

The plan for more than 8,000 homes in E1, near the illegal Ma’ale Adumim settlement near Jerusalem, was shelved by the Israeli prime minister Benjamin Netanyahu in 2013 after Palestinian activists set up a tent city named 'Bab al-Shams' to prevent construction.

Peace Now says its report, released on Monday, shows that the housing ministry hired architects in November 2014 to push forward with the plan.

E1, also known as East 1, is 12.4 square kilometres of land northeast of East Jerusalem and west of Ma’ale Adumim, which is home to 40,000 residents.

To the north of E1 is another large settlement, Pisgat Ze’ev.

Israeli construction in E1 would connect the two settlements, surround East Jerusalem completely and sever any geographical contiguity in the West Bank - a serious blow to any hopes of a viable Palestinian state.

According to Peace Now, the housing ministry plans 55,000 new homes in the area, including the creation of two new settlements near Bethlehem and in the Jordan Valley.

If implemented, as many as 15,000 Palestinian living in 45 communities in the area could be displaced.

“The area of Ma'ale Adumim and E1 is one of the most sensitive areas in terms of the chances for two-state solution,” Peace Now wrote.

“For these reasons, whenever an Israeli leader tries to promote the plans in E1, the international community strongly condemns them.”

The US, UN and EU oppose all Israeli settlement building but have particular concerns about plans for E1.

“This planning, which contradicts any possible commitment to a two-state solution, continues,” said Monday’s report, although it added that the plans could be years from realisation.

“They must be approved by the defence minister and then go through the approval process of the planning authority,” the report said.

Housing minister Yoav Galant denied the claims on Monday, telling Army Radio that there was "no planning and no preparation for planning in that area".