US officials have adopted a more forceful tone with Netanyahu's government in recent weeks, accusing it of recklessly accelerating construction despite international concern.
The United States on Thursday criticised Israel over plans to build hundreds of new settlement homes in the West Bank and accused it of a betrayal of trust.
The unusually strong statement made by the White House and State Department condemned Israel's proposal to build as many as 300 housing units "deep in the West Bank," as it could undermine the prospect of peace in the Middle East.
"We did receive public assurances from the Israeli government that contradict this announcement," White House spokesman Josh Earnest said.
"I guess when we're talking about how good friends treat one another, that's a source of serious concern as well."
Commenting on the matter, the State Department said building the units "is another step toward cementing a one-state reality of perpetual occupation."
The plan not only undermines hopes for peace with the Palestinians but "is fundamentally inconsistent with Israel's future as a Jewish and democratic state," spokesman Mark Toner said.
However, Israel regards the plan as part of an existing settlement called Shilo, which is about halfway between the Palestinian seat of government in Ramallah and Nablus farther north.
The Israeli Foreign Ministry stated that the new housing units do not constitute a separate settlement.
"This housing will be built on state land in the existing settlement of Shilo and will not change its municipal boundary or geographical footprint," the statement said adding that Israel remains committed to a two-state solution.
Last month, US President Barack Obama signed a $38 billion Israeli military aid assistance over the next decade, the largest such aid package US has agreed on with any county.
Washington has condemned a recent deadly wave of Palestinian attacks on Israeli civilians and police, urging Palestinian leaders to refrain from incitement or provocative language.
Obama and Israeli Prime Minister Benjamin Netanyahu have had an extremely difficult relationship during the past eight years.
The White House was furious when the Israeli leader agreed to address the Republican-controlled Congress to lobby against Obama's signature nuclear deal with Iran.
There were fresh tensions when Netanyahu ─ seeking reelection at the time ─ said that Palestinians would never get their own state on his watch.
Some considered that pandering to right-wing voters, others said it was Netanyahu showing his true colours.
At last week's funeral for Peres, Obama pointedly spoke of the "unfinished business of peace."
"He believed that the Zionist idea would be best protected when Palestinians, too, had a state of their own," he said of the Nobel Peace Prize winner.
"Of course, we gather here in the knowledge that Shimon never saw his dream of peace fulfilled."