Though it was no surprise, the announcement is likely to anger Palestinians and could cast a shadow on US-led peace efforts.
Israel's housing ministry said 800 new houses will be built in the West Bank and 600 in east Jerusalem.
The statement had been expected after Israel released 26 long-serving Palestinian prisoners in late December, part of a deal made last summer when Israeli-Palestinian peace talks resumed. It was the third of four pledged prisoner releases.
The announcement was expected earlier in January but was postponed, apparently to avoid any coinciding with last week's visit by US Secretary of State John Kerry. While Israel is not obligated to halt construction under the peace talks, Kerry has urged restraint and said the building raises questions about Israel's commitment.
Prime Minister Benjamin Netanyahu previously has issued similar construction announcements to blunt criticism he faces at home over the prisoner releases as many of the Palestinians freed were convicted of killing Israeli civilians and soldiers. Israelis widely resent the release of the prisoners, who they view as terrorists.
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