A Palestinian man rides a donkey near the Israeli settlement of Maale Edumim in the West Bank on December 28, 2016.
Trump has been promising this move for months.
Netanyahu spoke of the settlement approvals on Twitter.
During Trump's election campaign he expressed strong support to Israel.
Israel has been building settlements in the West Bank and East Jerusalem for years after its partial occupation.
Meanwhile, Jerusalem Mayor Nir Barkat said that Trump was a "true friend" to Israel, referring to a reported statement by Trump press secretary Sean Spicer that the administration was at the "very beginning stages" of discussing a move of the USA embassy in Israel from Tel Aviv to Jerusalem.
Israel's nationalist government has welcomed the prospective change in policy, but it also risks igniting Palestinian or even regional unrest.
Has Trump come to his senses on moving the US embassy to Jerusalem?
"So, this is not [surprising] that [Israeli Prime Minister Benjamin] Netanyahu has announced these new settlements", Ramini noted. Last year Obama's secretary of state, John Kerry, strongly criticized the construction of Jewish settlements on land Israeli captured in the West Bank in a 1967 war; President Trump, however, has given indications his administration will be more supportive of such expansion. Some 100 homes were slated for two smaller settlements.
Jerusalem's City Hall approved the building permits for more than 560 units in the urban settlements of Pisgat Zeev, Ramat Shlomo and Ramot, areas annexed to Jerusalem in a move unrecognised internationally. Israel calls Jerusalem its eternal capital, but Palestinians also lay claim to the city as part of an eventual Palestinian state.
Nabil Abu Rdeneh said the decision "disregards" global opposition to the settlements and is calling on the worldwide community to take a "real and serious position" against Israel.
The previous U.S. administration, under Obama, had plans for peace between Israel and Palestine, but Trump's term has raised concerns about an escalation of conflicts in the Palestinian lands.
Trump has signalled a softer approach to the settlements, and some of his top aides have close ties to the settler movement.
According to media reports, the parents of Jared Kushner - who is Donald Trump's son-in-law and his senior adviser, have contributed a significant amount of funds to the Beit El settlement bloc. "The Israeli-Palestinian issue, the situation in Syria, the Iranian threat", Netanyahu said in remarks broadcast at the start of his weekly cabinet meeting. Clarifying he said what he means for the Palestinians to have is not a state in the full sense, but rather a "state-minus". A similar story in Haaretz quoted Ahmad Majdalani, an aide to PA chief Mahmoud Abbas, as saying that "we received a calming message from the administration that the transfer of the embassy is not at the top of President Trump's agenda, and that the administration will instead concentrate on the peace process". But since taking office, the White House has been vague about its plans for the embassy.
Questions about the embassy move, which has been discussed by presidents since Richard Nixon, are expected to be asked regularly as Spicer continues his daily briefings.