Israeli authorities announced Tuesday the approval of 942 new settler homes in annexed east Jerusalem, provoking Palestinian fury on the eve of the resumption of fragile peace talks with Israel.

The Jerusalem municipality said that while it had only now given final approval for the new homes in Gilo, an existing settlement in east Jerusalem, they had been a long time in the planning phase.

Senior Palestine Liberation Organisation official Yasser Abed Rabbo said the announcement, coupled with the weekend approval of around 1,200 homes to be built elsewhere in east Jerusalem and the West Bank, threatened the "collapse" of talks.

"This settlement expansion is unprecedented," Abed Rabbo said. "It threatens to make talks fail even before they've started."

The last peace talks broke down in 2010 over the issue of settlement building.

The latest developments come as the Israelis are due to free 26 long-term Palestinian prisoners -- the first 104 to be released under a deal agreed to get the talks going again.

On Monday, US Secretary of State John Kerry urged the Palestinians "not to react adversely" to the weekend Israeli settlement announcement.

Kerry, who took the lead in securing last month's agreement to resume peace talks after a three-year hiatus, stressed the need for the two sides to return to the negotiating table as planned on Wednesday in Jerusalem.

Israeli justice minister and negotiator Tzipi Livni's office was keeping a tight lid on details of the precise venue and timing.

"The talks are closed to the media... There will be no photo opportunity and no statements," a spokeswoman texted in response to an AFP query.

"Therefore no details about the meeting will be given in advance."

The city's leftwing deputy mayor, Yosef Pepe Alalu, told AFP the municipality had approved a construction plan for 942 homes in Gilo.

"This is a terrible decision which is a provocation against the Palestinians, the Americans and the whole world who oppose continued settlement building," he said.

The city confirmed the homes' approval but said they had been planned for a long time.

"The authorisation (was) granted yesterday," a statement from Mayor Nir Barakat's office said Tuesday.

But "the housing development in the Jerusalem neighbourhood of Gilo was previously announced over two years ago."

On Sunday, Israel's housing ministry announced tenders for the construction of 793 settlement housing units in annexed east Jerusalem and 394 elsewhere in the West Bank.

Abed Rabbo said "settlement expansion goes against the US administration's pledges and threatens to cause the negotiations' collapse."

Kerry sought to neutralise the atmosphere, noting that the settlement plans were "to some degree expected," and calling for both sides to resolve their major issues.

"We have known that there was going to be a continuation of some building in certain places, and I think the Palestinians understand that," he said.

Kerry said he did not expect the latest developments to become a "speed bump," but he reiterated that the United States regards all settlements as illegal.

"Once you have security and borders solved, you have resolved the question of settlements. And so I urge all the parties not to react adversely or to provoke adversely, whichever party may do one or the other in any way," he said.

Meanwhile, Israel was preparing to release 26 veteran Palestinian prisoners ahead of Wednesday's talks, reportedly to begin in the early hours of the morning.

Israeli public radio said the 26 had been moved to Ayalon prison, in Ramle near Tel Aviv, where they had undergone "security checks" prior to their release.

A prisons service spokesman said they would leave Ramle in to convoys -- one to a West Bank crossing near Ramallah and another to the Erez crossing into the Gaza Strip.

He said they were due to be handed over to Palestinian authorities at about 1:00 am (2200 GMT Tuesday) "more or less".

The remaining 78 prisoners will be freed in batches depending on progress in talks.

The Supreme Court rejected Tuesday a last-minute appeal by families of victims, saying prisoner releases were political decisions for the government alone to take, court documents said.

Palestinian chief negotiator Saeb Erakat underlined the importance of the prisoner release for peace talks to continue.

"We hope to put into effect what we've agreed on... we hope for the release of 104 prisoners," he said.

"There is a clear understanding between us and the Americans and Israelis. Any change (in that) will mean the agreement is off the table."