By Doina Chiacu and Ori Lewis

WASHINGTON/JERUSALEM (Reuters) – The United States sharply criticized Israel on Wednesday over  plans to build a new Jewish settlement in the West Bank that it said would damage prospects for peace with the Palestinians and contradicted assurances made to Washington.

The White House and State Department “strongly condemned” Israel’s decision to advance a plan that they said would create a new settlement “deep in the West Bank” and undermine a two-state solution.

In unusually harsh words for its Middle Eastern ally, Washington also accused Israel of going back on its word.

“We did receive public assurances from the Israeli government that contradict this announcement,” White House spokesman Josh Earnest said at a news briefing. “I guess when we’re talking about how good friends treat one another, that’s a source of serious concern as well.”

U.S. President Barack Obama raised concerns about West Bank settlements when he met Israeli Prime Minister Benjamin Netanyahu in New York last month.

A senior U.S. official told reporters afterwards those concerns included the “corrosive effect” settlement activity had during 50 years of occupation on prospects for negotiating a peace deal based on a two-state solution.

The United States contends that the project constitutes the establishment of a new settlement in the West Bank, contrary to assurances by Netanyahu that no new settlements would be built.

Israel regards the planned housing units 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 said in a statement the new housing units do not constitute a new 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.

It added that Israel remains committed to a two-state solution.

The municipal boundaries of many settlements in the West Bank are extensive, enabling Israel to argue that housing units built near the fringes of those boundaries are not new settlements, but only neighborhoods of exiting ones.

In its tough words on Wednesday, the Obama administration is effectively challenging that practise.

The State Department statement cited Israeli authorities’  retroactive authorization of nearby settlements and the redrawing of local settlement boundaries.

The new settlement would be closer to Jordan than Israel  and link a string of Jewish outposts, dividing the Palestinian region, the statement said.

A labourer walks near a construction vehicle in the West Bank Jewish settlement of Shilo, near Ramallah October 6, 2016. REUTERS/Baz Ratner

“It is deeply troubling” that Israel would make this decision shortly after it reached an agreement with Washington on U.S. military aid designed to bolster Israel’s security,  State Department spokesman Mark Toner said in the statement.

The United States will give Israel $38 billion in military assistance over the next decade, the largest such aid package in U.S. history, under a landmark agreement signed on Sept. 15.

Toner also noted it was “disheartening” for the decision to come as the world mourned former President Shimon Peres, a passionate proponent of an independent Palestinian state alongside Israel.

Earnest attributed the strong U.S. reaction as being driven by the location of the proposed settlement and the timing of the announcement.

“All of that combined would explain why the United States is so disappointed and even sharply critical of this decision announced by the Israeli government,” Earnest said.

Israelis have to choose between expanding settlements and a peaceful two-state solution with the Palestinians, Toner said.

“Proceeding with this new settlement is another step toward cementing a one-state reality of perpetual occupation that is fundamentally inconsistent with Israel’s future as a Jewish and democratic state,” Toner said.

Israel said on Wednesday that new houses it was building in the occupied West Bank did not constitute a new settlement, dismissing a strong U.S. condemnation of project.

“The 98 housing units approved in Shilo (settlement) do not constitute a ‘new settlement’. This housing will be built…in the existing settlement of Shilo and will not change its municipal boundary or geographical footprint,” a Foreign Ministry statement said.

(Additional reporting by Arshad Mohammad and Roberta Rampton in Washington, Ori Lewis in Jerusalem; editing by Grant McCool)