It is a signal that Prime Israeli Minister Benjamin Netanyahu wants to first discuss the bill with the US White House, which has been seeking to restart long-stalled Israeli-Palestinian peace talks.
US pressure has forced Israeli Prime Minister Benjamin Netanyahu to postpone a vote on a controversial bill that critics say would amount to the de facto annexation of Israeli settlements surrounding Jerusalem, an official said on Saturday.
The "Greater Jerusalem" legislation would put some settlements in the occupied West Bank, built on land Palestinians seek for a future state and viewed as illegal by most countries, under the jurisdiction of Jerusalem's municipality.
The bill, proposed by a member of Prime Minister Benjamin Netanyahu's right-wing Likud party, was to have been submitted for approval on Sunday to a ministerial committee on legislation, a first step before a series of ratification votes in parliament.
But Likud lawmaker David Bitan, chairman of Netanyahu's coalition in parliament, said a vote by the cabinet committee would be delayed because Washington told Israel the bill's passage could impede US efforts to revive peace talks that collapsed in 2014.
"There is American pressure that claims this is about annexation and that this could interfere with the peace process," Bitan told Army Radio.
"The prime minister doesn't think this is about annexation. I don't think so either. We have to take the time to clarify matters to the Americans. Therefore, if the bill passes in a week, or in a month, it's less problematic," he said.
The bill would absorb major Israeli settlements currently in the occupied West Bank into Jerusalem by enlarging the city limits.
Settlements affected are Maale Adumim, Beitar Illit, Efrat, Givat Zeev, and the Gush Etzion settlement bloc.
Its opponents argue that it is a step towards full unilateral annexation of the West Bank settlements affected - a move that would be sure to spark international outrage.
For the vast majority of the international community, the status of Israel's settlements, built on land the Palestinians see as part of their future state, is to be decided in peace negotiations.
The bill has drawn harsh criticism from Palestinians and those hoping to salvage the two-state solution.
Proponents of the legislation say it falls short of formal land annexation to Israel but will enable some 150,000 settlers to vote in Jerusalem city elections. Intelligence Minister Israel Katz, a supporter of the bill, has said this would "ensure a Jewish majority in a united Jerusalem."
Israel occupied the West Bank, including east Jerusalem, in the Six-Day War of 1967. It later annexed east Jerusalem in a move never recognised by the international community.
Israeli media reports said the US ambassador to Israel, David Friedman, had conveyed misgivings about the legislation, under which the large Maale Adumim and Beitar Illit settlements would become part of a Greater Jerusalem municipality.
Israel's Haaretz newspaper quoted Netanyahu as telling cabinet ministers on Sunday: "The Americans turned to us and inquired what the bill was all about. As we have been coordinating with them until now, it is worth continuing to talk and coordinate with them."
A US embassy spokeswoman declined immediate comment.
Some 500,000 Israelis live in the West Bank and East Jerusalem, areas home to more than 2.6 million Palestinians.