US-sponsored peace talks with Israel have reached an impasse because of Jewish settlement activity, a Palestinian spokesman said Thursday, as plans for over 2,000 West Bank units were moved forward.

The latest crisis comes as Washington scrambles for a formula to allow the Palestinians and Israelis to carry on the peace talks beyond an April 29 deadline.

"Israel's settlement activity caused the negotiations to fail and led them to an impasse," Nabil Abu Rudeina, a spokesman for Palestinian president Mahmud Abbas, told AFP.

Abu Rudeina was reacting to the decision of an Israeli defence ministry committee, revealed earlier on Thursday, to push forward with plans to build 2,269 new West Bank homes.

A ministry spokesman said last month the committee had approved the building of 1,015 units in Leshem, Beit El and Almog, leaving Defence Minister Moshe Yaalon's approval as the final step.

The same committee approved 1,254 units in Ariel, Shvut Rachel and Shavei Shomron. Those projects will be published in the media for public comment before returning to the committee for further discussion.

Israeli-Palestinian peace talks are teetering on the brink of collapse, with Washington fighting an uphill battle to get the two sides to agree to a framework proposal to extend the negotiations to the year's end.

So far, the Palestinians have flatly refused to consider any extension, partly over Israel's persistent settlement construction which has shown no let-up since talks resumed last July.

Israeli anti-settlement watchdog Peace Now said the planned new units would create "facts on the ground that distance us from the two-state solution".

They were further proof that Israel had "no intention to reach a peace agreement and was doing everything it could to force Palestinian president Mahmud Abbas out of the process".

On Wednesday, a municipal committee gave final approval for plans to build 186 new homes in annexed Arab east Jerusalem.

Another stumbling block to the prospect of extending talks is the impending release of Palestinian prisoners.

Israeli ministers have warned that should the Palestinians not agree to extend talks, they will not release a fourth and final group of inmates as scheduled on March 29.

Israel agreed to release a total of 104 prisoners when talks kick-started by US Secretary of State John Kerry began last July.

Earlier this month, Abbas said Palestinians will not agree to extend peace talks unless Israel agrees to release more prisoners.

He demanded in talks with US President Barack Obama on Monday that Israel free key Palestinian prisoners, according to the Palestinian prisoner club.

Abbas referred to Popular Front for the Liberation of Palestine leader Ahmad Saadat, former Palestinian Liberation Organisation finance official Fuad Shubaki and Marwan Barghuti, an architect of the 2000 intifada.

A visiting EU parliamentary delegation on Thursday urged Israel to release long-term Palestinian prisoners, saying it was crucial to move the fragile peace process forward.