A row over Israeli building in east Jerusalem has caused major embarrassment during the American Vice President's visit to the region.

Joe Biden's visit to Israel this week, the highest-level visit so far by an Obama administration official, was supposed to be a friendly event. Sources said before the visit that Mr Biden would assure Israel that the US would never allow Iran to achieve nuclear weapons and warn Israel not to launch an attack. The administration also hoped that the visit would herald the resumption of talks between Israel and the Palestinians, which have been stalled for a year.

On the eve of Mr Biden's trip, the State Department in Washington announced that Israel and the Palestinians had agreed to resume the diplomatic process. The negotiations were to take the form of "proximity talks", in which the American representative, George Mitchell, was to shuttle between Jerusalem and Ramallah to "map out" the two sides' positions on the issues. The Israeli and Palestinian representatives would not talk to each other directly due to the Palestinian demand that Israel first freeze building in east Jerusalem.

But the original date for the talks, next week, is now in doubt, following the latest announcement by the Jerusalem District Planning Council authorising 1,600 new flats in the Ramat Shlomo neighbourhood, across the green line.

The announcement also cast a pall on the Biden visit, which had begun on Tuesday with warm meetings with Israel's leaders. Mr Biden said that he had sympathy for the Palestinians but "Israel has captured my heart".

But when the planning council's decision was announced in the afternoon, the tone changed. Mr Biden and his wife arrived an hour-and-a-half later to a private dinner with the Netanyahus and his office issued a stern condemnation of the decision during the meal.

The next day, in Ramallah, during a meeting with Palestinian President Mahmoud Abbas, Mr Biden said that the building permit "undermines the trust needed for negotiations".

Palestinian sources said that they had not agreed to take part in the "proximity talks" next week and that the issue would be referred to the Arab League.

The announcement, which took the Prime Minister's Office by surprise, caused major embarrassment for Mr Netanyahu. Aides of the prime minister accused the right-wing Interior Minister, Eli Yishai, who is responsible for the planning commissions, of not warning him in advance. Mr Yishai denied he was aware of the committee's meeting.

He added that "I have given instructions that in the future, sensitive planning meetings will not be held while senior American officials are here."

Cabinet Secretary Zvi Hauser circulated a memo to ministers requesting them to notify the Prime Minister's Office of all sensitive meetings. At the same time, Mr Hauser said that "we are not changing our policy, building is going on in all parts of Jerusalem".

Ramat Shlomo is a strictly Orthodox neighbourhood in north Jerusalem, built 15 years ago. The new extension was approved to alleviate the housing shortage in the Charedi community.