Jerusalem (AFP) - An Israeli planning committee on Wednesday approved plans to build 200 homes in a Jewish settlement neighbourhood of annexed east Jerusalem, a city councillor told AFP.

Arab east Jerusalem has been shaken by months of clashes and city councillor Yosef Pepe Alalu told AFP that plans to build in the Ramot neighbourhood would cause further tensions.

"This is a new building plan and we are at the preliminary stage," said Alalu of the leftwing Meretz party.

"It is a decision which is going to cause great harm."

Lior Amihai, a spokesman for settlement watchdog Peace Now, also denounced the move.

"This is terrible -- and in the middle of such a sensitive period," he told AFP.

Israel seized east Jerusalem during the 1967 Six Day War and later annexed it in a move never recognised by the international community. It views the entire city as its "united, undivided capital" and does not see construction in the eastern sector as settlement activity.

The Palestinians want east Jerusalem as capital of their promised state and vehemently oppose any Israeli attempt to build or purchase property there.