Israeli municipal authorities have approved the construction of a three-storey residential building for Jewish settlers in a Palestinian neighbourhood of East Jerusalem.
Hundreds of Jews, armed or protected by Israeli security forces, already live among 50,000 Palestinians in the Silwan neighbourhood.
Pro-settlement groups have been seeking to reclaim property there that was under Jewish ownership in the 19th century.
Wasel Abu Yousef, a senior member of the Palestine Liberation Organization, condemned the Jerusalem municipality's Wednesday decision.
"This government is moving forward to implement its program to bring Israeli settlers and settle them in the place of the Palestinian residents to change the demographic situation in the Holy City," Abu Yousef told Reuters.
Israel captured East Jerusalem in a 1967 war and considers all of Jerusalem its indivisible capital, a claim that has not won international recognition.
Palestinians want East Jerusalem as the capital of a state they seek to establish in the occupied West Bank and Gaza Strip, and fear that Israeli settlements - regarded by most countries as illegal - will deny them a viable country.
Israel's anti-settlement Peace Now group said Palestinians who live next to the site where the new dwelling is to be built plan to appeal against city hall's move.
The plot was previously administered by an Israeli government agency which sold it to settlers.
In a statement after the building permit was issued, the Jerusalem municipality said the city was "united and any resident can live wherever he or she pleases".
The United States and many other countries have urged Israel not to expand Jewish settlement on land Palestinians want for a state.
Citing historical and religious ties, and security needs, Israel says it intends to hold on to all of Jerusalem and parts of the West Bank in any future peace deal.
