Palestinian foreign minister Riyad al-Malki on Thursday denounced Israeli plans to build hundreds of new settler homes in east Jerusalem, threatening to pursue international legal action in response.

Israel announced on Wednesday it would build 1,500 new settler homes in the mostly Arab sector of Jerusalem, immediately after the Jewish state released 26 long-serving Palestinian prisoners in line with its commitments to US-backed peace talks.

"The foreign ministry is seriously looking at turning immediately to international courts and organisations, and filing the necessary complaints in order to stop settlement building," Malki said.

He condemned "plans approved by Prime Minister Benjamin Netanyahu for settlement building, and Netanyahu's attempts to link the settlement issue with the prisoners issue."

PLO chiefs convened later on Thursday in Ramallah, in a session chaired by president Mahmud Abbas.

"The Palestinian leadership will take a number of steps in the next few days to face the settlement offensive," the Palestine Liberation Organisation's executive said after the meeting.

Plans to build new settler homes in east Jerusalem came to light almost immediately after Israel began freeing 21 prisoners to the West Bank and another five to the Hamas-run Gaza Strip.

Israel says it never promised to freeze settlement during talks.

"Israel is honouring all the understandings reached prior to the opening of negotiations with the Palestinians," a senior official told AFP.

"It was understood to all sides to the negotiations, it was clear from the beginning, that Israel was not taking upon itself any limitations in building or planning.

"Israel sees continuation of negotiation with the Palestinians as important."

The latest round of release and building plans was almost a mirror image of August 13, when a first tranche of 26 prisoners were freed and Israel announced construction of more than 2,000 new settler homes, mostly in east Jerusalem.

The Palestinians agreed to refrain from pursuing legal action against Israel during ongoing peace talks, but have repeatedly warned that continued settlement building would force them to recourse to the International Criminal Court and other international bodies.

The settlement issue derailed the last round of peace talks in 2010.

US Secretary of State John Kerry, who nudged the sides back to the negotiation table in July, is heading back to Israel and the West Bank next week in a bid to bring fresh impetus to the talks, amid accusations from the Palestinians that Israel is working "to wreck" peace attempts with its settlement plans.