TEL AVIV—Israel approved a plan to build 1,100 housing units in a section of Jerusalem claimed by the Palestinians, complicating efforts to persuade Palestinian President Mahmoud Abbas to resume peace talks instead of pursuing a vote for admission to the United Nations.

The move comes days after Mr. Abbas asked for a U.N. Security Council vote to gain full membership in the global body, a move opposed by the U.S. and Israel as sidestepping bilateral negotiations.

The U.S. and other members of the so-called Quartet of the international peace process—the U.S., European Union, the U.N. and Russia—criticized the move, which comes as they await an answer within days from the Palestinians and the Israelis to an invitation to restart talks.

The Palestinian leadership, which is already balking at negotiations with Israeli Prime Minister Benjamin Netanyahu, will be even less likely to join after the building announcement.

U.S. Secretary of State Hillary Clinton called the move "counterproductive" in a statement and the U.N. said the building plan "sends the wrong signal'' on peace talks.