Israel's foreign minister on Thursday slammed a demand by the UK government to halt a major settlement project in the occupied West Bank, after Israeli authorities opened bidding for more than 1,200 homes in the area.

Britain said it had summoned Israel's charge d'affairs over the E1 plan, which was green-lit by Israel last year and has drawn international condemnation.

The UN secretary general said at the time that E1 posed an "existential threat" to a contiguous Palestinian state.

The project would further separate east Jerusalem, occupied and annexed by Israel and predominantly inhabited by Palestinians, from the West Bank.

British foreign minister Ed Miliband on Wednesday called the move "an unacceptable and destructive act" and said it would "endanger the viability of a two-state solution".