Jerusalem (CNN) Israel's parliament passed legislation Monday that aims to legalize about 3,000 housing units built on private Palestinian land in the West Bank.

Many of the housing units are located in outposts, the term for small, unsanctioned communities that have sprung up in the West Bank over the last 20 years. Unlike settlements, they are not recognized or authorized by Israel even though many are close to existing settlements.

The vote further complicates efforts to reach a two-state solution in the longstanding Israeli-Palestinian conflict over land rights. Officials from both sides of the debate characterized the vote as a clear step toward annexation of the West Bank.

The vote follows Israel's announcement last week that it plans to build a new settlement in the West Bank, despite a UN Security Council resolution in December condemning Israeli settlement construction.

Before the vote, Nickolay Mladenov, the United Nations Special Coordinator for the Middle East Peace Process, urged Israeli legislators to reconsider adopting the measure, noting that Israel's attorney general had deemed it unconstitutional.

"If adopted into law, it will have far-reaching legal consequences for Israel and greatly diminish the prospects for Arab-Israeli peace," Mladenov said in a statement Monday.

Israeli minister: An 'historic move'

Government Minister Miri Regev of Prime Minister Benjamin Netanyahu's Likud party called the bill's passage "a historic move" toward annexing the West Bank.

"This is the first step towards complete regulation, namely, applying Israeli sovereignty over Judea and Samaria," Regev said, using the biblical name for the West Bank.

The new law is widely expected to be appealed to the Supreme Court on the grounds the Knesset does not have the authority to legislate property issues on land that is not part of Israel.

Israeli nongovernmental organization Peace Now, which campaigns to promote peace between Israelis and Palestinians, said it will appeal the law.

"Benjamin Netanyahu is willing to allow land theft to endanger IDF officers, and to drag Israel to the International Criminal Court in the Hague, all in the name of political survival, and under the pressure of interrogations. In light of this insanity, we will act as the responsible adult and will block this dangerous law in the Supreme Court," Peace Now said.

The bill offers original Palestinian landowners compensation for their loss of the land, though Palestinians have not agreed to the sale.

PLO condemns vote

Under international law, all settlements and outposts are illegal because the West Bank is considered occupied territory, though Israel disputes this.

Senior Palestinian officials condemned the law, calling it legalized "land theft" and accusing the Knesset of breaking international law.

"Such a law signals the final annexation of the West Bank. Not only does it attempt to retroactively legalize the settlements and outposts built on Palestinian private property, it also gives clear license to the settlers to embark on a land grab in the occupied West Bank with impunity," Executive Committee Member Dr. Hanan Ashrawi said in a statement.

"All settlements are illegal, whether on private property or on state land that belongs to the Palestinian collective as a whole."

Palestine Liberation Organization Secretary General Saeb Erakat appealed to the international community to act with "concrete measures" to protect the Palestinian people from Israel's military rule.

"All Israeli settlements in occupied Palestine are illegal and a war crime regardless of any law passed by the Israeli parliament or any decision taken by any Israeli judge. The Israeli settlement enterprise negates peace and the possibility of the two-state solution," he said in a separate statement.

"It's long overdue to hold Israel accountable for its systematic violations of international law, in defiance of the collective international will to act for peace."