The government official, who asked not to be identified, said Netanyahu gave the go-ahead on Monday to market the homes in Ramat Shlomo and another 18 in Ramot.
In a statement, the Palestinian Authority condemned the Israeli plan and settlement-building as a whole as a "flagrant violation of international law" aimed at preventing the establishment of a Palestinian state.
Under international law, all Jewish settlements in the West Bank are considered illegal. Ramat Shlomo and Ramot are in a part of the occupied West Bank that Israel annexed to Jerusalem in 1967 in a move that has not won international recognition.
News of the decision came a week after the European Union (EU) decided to start labeling Israeli products made in the West Bank — a move that shows the bloc's disapproval over Israel's expansion of illegal settlements. The move requires that producers must explicitly label products that come from settlements built on land occupied by Israel if they are sold in the EU.
Some 500,000 Israelis have settled in the West Bank and East Jerusalem among 2.4 million Palestinians.
Despite international backlash, Israel's settlement projects continue. Last month, the state retroactively legalized about 800 homes in four settlements throughout the West Bank, the interior ministry said.
Continued settlement growth could further anger Palestinians who feel squeezed by growing loss of land to Jewish homes in the West Bank and East Jerusalem. In the latest unrest, settlers have been perpetrators of violence against Palestinians as well as targets.
Since Oct. 1, Israeli forces and settlers have killed at least 78 Palestinians, 45 of whom Israel alleges were carrying out or were about to commit attacks. At least 14 Israelis have been killed by Palestinians.
Al Jazeera and wire services