The move would severely damage remaining prospects for a two-state solution to the Israeli-Palestinian conflict and draw international outrage.
"Regarding the issue of applying sovereignty, I can tell you that I have for some time been speaking with the Americans about it," Netanyahu told lawmakers from his Likud party, according to comments relayed by a spokesman.
Netanyahu said he wanted to coordinate any such "historic" move with the United States because of the country's strategic importance to Israel, his spokesman said.
Some Israeli media interpreted the comments as the first time Netanyahu expressed support for annexing the settlements.
Saeb Erekat, secretary general of the Palestine Liberation Organisation, condemned the remarks as amounting to "land theft" with US complicity.
The comments come with Netanyahu under pressure from right-wing politicians to move ahead with legislation that would apply Israeli sovereignty to settlements in the West Bank.
Two lawmakers, including one from Netanyahu's party, have proposed such legislation.
Trump recognised Jerusalem as Israel's capital in December in a move praised by Netanyahu as "historic" but denounced by the Palestinians and most of the rest of the world.
But as Netanyahu's comments made headlines on Monday and US officials failed to confirm the discussions he spoke of, an Israeli official issued a clarification.
Netanyahu "did not present the United States with specific annexation proposals, and in any case the United States did not give its consent to the proposals", the official said on condition of anonymity.
"Israel updated the United States on various proposals raised in the (parliament), and the United States expressed its clear position that it seeks to advance President Trump's peace plan."
The official added that Netanyahu's position "is that if the Palestinians persist in their refusal to negotiate peace, Israel will present its own alternatives".
While Israel would expect to retain certain settlements in any two-state peace deal, longstanding international consensus has been that their status must be negotiated.
The same consensus has been in place for decades regarding the status of Jerusalem, with the Palestinians wanting the Israeli-annexed eastern sector of the city as the capital of their future state.
Israeli settlements are located in what is known as Area C of the West Bank, which accounts for more than 60 percent of the Palestinian territory.
Annexing all settlements would leave little space for a Palestinian state.
Netanyahu says he wants the Palestinians to govern themselves, but in recent months has declined to specify whether that would mean an independent Palestinian state or some lesser form of autonomy.
While Trump has offered strong support of Israel, he said in an interview published Sunday that he was "not necessarily sure" the country was seeking to reach a peace agreement with the Palestinians.
"Right now, I would say the Palestinians are not looking to make peace," Trump said in the interview with right-wing Israeli paper Israel Hayom.
"And I am not necessarily sure that Israel is looking to make peace."
In a rare rebuke, he also said Israeli settlement building "complicates" peace efforts.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)