Israel has started building at least 600 homes since the end of a construction freeze, watchdog Peace Now said on Thursday, in a move which the Palestinians slammed as "a flagrant act of defiance".

"In our estimation, building has started on between 600 and 700 new housing units in less than one month, which is four times the pace of construction since before the freeze," Peace Now's Hagit Ofran told AFP, referring to the moratorium that began at the end of November 2009.

Direct talks between Israel and the Palestinians are facing imminent collapse in a bitter row over settlement building on occupied West Bank land that resumed after the end of the 10-month ban.

Israel has refused to reimpose the moratorium, while the Palestinians say they will not hold talk while settlers are building on Palestinian land, prompting a flurry of US diplomatic efforts to resolve the deadlock.

And Thursday's revelation, details of which are to be fleshed out in a Peace Now report to be published next week, looked set to put a knife in the back of diplomatic efforts to salvage the talks.

"This flagrant act of defiance towards the Palestinians, the Arabs and the US administration demands an Arab and an international response -- particularly from the Americans," said Nabil Abu Rudeina, spokesman for president Mahmud Abbas.

Faced with Israel's insistence on continued settlement building, the Palestinians are going to demand Washington recognise a Palestinian state, said Nimr Hammad, another adviser of the Palestinian president.

"In the face of Israel's stubborn continuation of settlement construction and given that the US administration has called many times for the end of the occupation ... as well as the establishment ... of a Palestinian state, we are going to officially ask that Washington recognise the Palestinian state," he told AFP, without saying when.

Peace Now said the surge in construction was to meet immediate demand for some 2,000 housing units, as part of a longer-term plan to build about 13,000 new homes, all of which had already been approved.

After the moratorium expired just over three weeks ago, Jewish settlers across the West Bank began building in earnest, although they were advised by the Israeli leadership to keep a low profile so as not to inflame international condemnation.

As bulldozers lumbered into action, the Palestinian leadership held back on a threat to abandon talks, with Abbas and Arab foreign ministers giving Washington a few weeks grace period to find a diplomatic solution to the crisis.

Although the freeze did not cover building in mostly Arab east Jerusalem, Ofran said there had been a "certain slowdown" in construction there since a visit in March by US Vice President Joe Biden.

In an announcement which was seen as a slap in the face for the visiting Biden, Israel said it would build 1,600 new settler homes in annexed east Jerusalem, prompting a major crisis with Washington.

Since then, Israel has not signed off on any new building in the east, until last week, when it approved plans for another 240 homes in the settlement neighbourhoods of Pisgat Zeev and Ramot.

The move was sharply condemned by the Palestinians, who accused Israel of being intent on "killing" every opportunity to revive peace talks between the two sides.

Netanyahu has so far refused to reimpose the freeze, largely because he lacks support for such a move within his right-wing coalition.

Jewish settlement on occupied Palestinian land is one of the most bitter aspects of the conflict.

About 500,000 Israelis live in more than 120 settlements across the West Bank, including east Jerusalem -- territories which the Palestinians want for their promised state.

The Palestinians see the settlements as a major threat to the establishment of a viable state and view the freezing of settlement activity as a crucial test of Israel's intentions.