Israel passed a law on Monday retroactively legalising about 4,000 settler homes built on privately owned Palestinian land in the occupied West Bank.

The Israeli Knesset voted 60 to 52 to pass the law, which has drawn international concern and Palestinian anger.

Prime Minister Benjamin Netanyahu initially opposed the bill, fearing an international backlash and legal implications, but voiced support for it in November before it passed its second reading.

The bill has been pushed by hardline members of Netanyahu's coalition.

The Palestine Liberation Organisation slammed the new Israeli law as a means to "legalise theft" of Palestinian land.

Hanan Ashrawi, a senior member of the PLO, said in a statement that the law gave settlers a green light to "embark on a land grab".

"Prime Minister Benjamin Netanyahu and his extremist, racist coalition government are deliberately breaking the law and destroying the very foundations of the two-state solution and the chances for peace and stability," Ashrawi said.

The U.N. Special Coordinator for the Middle East Peace Process Nickolay Mladenov said in a statement that the law "will have far reaching legal consequences for Israel and greatly diminish the prospects for Arab-Israeli peace".

Then-US President Barack Obama voiced concerns about the bill when it was introduced late last year. But President Donald Trump has said that he does not view settlements as an obstacle to peace.

"This would represent an unprecedented and troubling step that's inconsistent with prior Israeli legal opinion and also break longstanding Israeli policy of not building on private Palestinian land," the US State Department said of the bill in November 2016.

Chairman of the Israeli opposition, lawmaker Isaac Herzog, warned lawmakers on Monday that allow Palestinians to sue Israel in the International Criminal Court.

But Likud minister Ofir Akunis said lawmakers were voting on the connection of the Jewish people with their land. "This entire land is ours," he said.

Education Minister Naftali Bennett hailed the passing of the bill.

"To our friends in the opposition who express surprise in a nationalist government's passing a bill to benefit settlement: This is democracy. The cabinet is carrying out exactly the purpose for which it was elected: to govern," Netanyahu said, according to Haaretz.