The US State Department has expressed concern about an Israeli plan for the demolition of 22 Palestinian homes in occupied East Jerusalem.
Spokesman PJ Crowley said it was the kind of action that undermined trust and increased the risk of violence.
The scheme, part of a redevelopment project in the Silwan neighbourhood, is still in an initial stage.
Israel's Defence Minister has also criticised Jerusalem's municipality for "bad timing" and poor "common sense".
Under the plan approved on Monday, 22 homes would be demolished to make room for an Israeli tourist park. Another 66 other buildings constructed without Israeli permission would be legalised.
It is strongly opposed by the Palestinians, who believe it will tighten Israel's control of the area.
The US, which has previously criticised similar demolition plans as damaging for the Middle East peace process, said it had raised the Silwan plan with the Israeli government.
"We're concerned about it... This is expressly the kind of step that we think undermines trust that is fundamental in making progress to the proximity talks and ultimately in direct negotiations," said Mr Crowley.
Within hours, Israeli Defence Minister Ehud Barak, who is in Washington for talks with the Obama administration, issued a statement criticising the Jerusalem municipality.
"The Jerusalem municipality and the planning committee have shown a lack of common sense and sense of timing - and not for the first time," Mr Barak was quoted as saying by Israeli newspaper Haaretz.
Israel's relations with the US have been strained since the announcement in March of the construction of 1,600 housing units in a Jewish neighbourhood in East Jerusalem during the visit of US Vice President Joe Biden.
The Jerusalem municipality said that, while the plan has been approved, there are still several legal stages to get through before it is implemented.
The chief Palestinian negotiator, Saeb Erekat, has said it was a dangerous move which required world intervention.
Israel has occupied East Jerusalem since 1967. It annexed the area in 1981 and sees it as its exclusive domain. Under international law the area is occupied territory. Palestinians want East Jerusalem as the capital of a future state.