The Israeli housing ministry filed a request on 9 February for the construction of 9,000 houses in occupied East Jerusalem, on land marked as Palestinian in US President Donald Trump's "deal of the century", watchdog Peace Now reported.
If approved, the homes will be built on land between the Palestinian neighbourhoods of Kafr 'Aqab, Qalandiya and Al-Ram in East Jerusalem, and on the site of the Atarot Airport, which has been out of use since the Second Intifada in 2000.
According to the Trump plan, Israel would maintain control over Atarot and all other neighbourhoods in East Jerusalem west of the Separation Wall, but the self-declared Jewish state "should allow for the development by the State of Palestine of a special tourism zone in Atarot".
The plan states that the Atarot "tourist zone" is intended to encourage Muslim tourism to Jerusalem through "state-of-the-art public transportation that provides easy access to and from the holy sites".
Palestinians have widely rejected the deal, which President Mahmoud Abbas said would lead to a "Swiss cheese" state.
Peace Now said that "the planned settlement neighbourhood drives a wedge in the heart of the Palestinian urban continuity between Ramallah and East Jerusalem", and precludes "the establishment of a viable Palestinian state".
Much of the land involved in the plan is considered government property, and private landowners are to be offered rights to part of the plan, based on the value of land that they own.
However, Haaretz reported that at least 15 Palestinian homes, built in the surrounding area without official permits, because they are unable to obtain them from the Israeli occupation authorities, will be demolished.
This is not the first report of a possible settlement in the Atarot area. After the Israeli Ministry of Housing declared an intent to establish approximately 10,000 homes in the area, as early as December 2015. The ministry reportedly allocated $7.6 million for construction.
Details of the settlement plan emerged after the Israeli transport ministry approved plans for a train line between Ben-Gurion Airport and the occupied old city of Jerusalem.
Jordanian officials called the planned railway extension "a flagrant violation of international law".
The approval process for the new settlements is expected to take several years, but should the construction go ahead, the homes will be the first new neighbourhood in East Jerusalem since Har Homa in 1997.
More than 600,000 Jewish settlers already live in settlements, considered illegal under international law, in the occupied West Bank.