Israel has passed a controversial law retroactively legalising 3,800 settler homes built on private Palestinian land in the occupied West Bank.
Under the law the original Palestinian landowners will be financially compensated or given alternative land.
New US President Donald Trump has taken a softer stance on Israeli settlement activity than his predecessor- Barack Obama- who was a vocal critic.
The new law comes amid an escalation in settlement activity in recent weeks.
Emboldened by what it sees as a more sympathetic U.S. administration, Israel has advanced plans for thousands of new homes in settlements.
More than 600,000 Jews live in about 140 settlements built since Israel’s 1967 occupation of the West Bank and East Jerusalem – land the Palestinians claim for a future state.
The settlements are considered illegal under international law, though Israel disputes this.
Palestinians say the new legislation negates peace and their chances of creating a state. However, its passage could be largely symbolic.
Already Israel’s attorney general has said the law is unconstitutional and that he will not defend it in the Supreme Court.
The law, which passed by 60 votes to 52, legalises the homes in both settlements and some 53 outposts-settlements built without official authorisation, according to Israeli anti-settlement watchdog Peace Now.
The group says there are 97 outposts across the West Bank, though the largest, Amona, was evacuated by police last week after the Supreme Court ordered it to be dismantled because it was built on private Palestinian land.
However, the new legalisation has proved divisive within Israel and is likely to face legal challenges.
Opposition leader Yitzhak Herzog denounced the measure as an acute danger to Israel which could lead to prosecution at the International Criminal Court (ICC) at The Hague.
The ICC is currently examining whether Israeli settlements should be subject to a full investigation.
A minister from Israeli Prime Minister Benjamin Netanyahu’s Likud party championed the vote as a demonstration of the connection between the Jewish people and its land.
Meanwhile, Palestinians condemned the law.
“This is an escalation that would only lead to more instability and chaos,” said Nabil Abu Rudeineh, a spokesman for Palestinian leader Mahmoud Abbas.
He added: “It is unacceptable. It is denounced and the international community should act immediately.”
The UN Middle East envoy, Nickolay Mladenov, said that the law would greatly diminish the prospects for Arab-Israeli peace.
Last week, the White House said that it did not see settlements as an impediment to peace, though new settlements or expanding existing settlements beyond their borders “might not be helpful”.
However, it said it had not yet formed an official position on the settlements issue.
Trump is due to meet Netanyahu in Washington next week for the first time since Trump took office last month.