The planned new homes mark one of the largest settlement expansions since 2013, according to the settlement watchdog Peace Now. It comes just days after Trump's inauguration and two days after he spoke with Netanyahu, a conversation which Trump described as "warm" and during which he invited Netanyahu to the White House early next month.
Trump press secretary Sean Spicer was asked about the new housing units Tuesday at the White House press briefing.
"Israel continues to be a huge ally of the United States," Spicer said. "(Trump) wants to grow closer with Israel to make sure that it gets the full respect that it deserves in the Middle East."
Most of the housing units are in the main settlement blocs, Liberman said, but approximately 100 units are in Beit El, a settlement outside of Ramallah, which received a $10,000 donation in 2003 from the Trump Foundation -- Trump's charitable organization -- according to the foundation's publicly available tax return.
Trump made the donation in honor of David Friedman, his bankruptcy attorney and pick for US Ambassador to Israel. Friedman had served as President of the American Friends of Bet El Institutions, a group that raises funds for settlement activities. Friedman, an Orthodox Jew, has been an outspoken and active supporter of the settlement movement.
Liberman also said he will ask the cabinet for approval of a new industrial zone for Palestinians next to Tarkumiya in the southern West Bank.
The new settlement announcement is the first from the Prime Minister's office since Trump was inaugurated on Friday. It comes two days after the municipality of Jerusalem advanced plans for more than 550 housing units in East Jerusalem.
At the request of Netanyahu, those plans were frozen late last year on the eve of Secretary of State John Kerry's speech condemning settlement construction, said Meir Turgeman, a member of the city's zoning committee.
Netanyahu had made it clear Israel would not abide by a UN Security Council resolution
passed in the final weeks of the Obama administration that called settlements in the West Bank and East Jerusalem a "flagrant violation under international law."
Palestinian President Mahmoud Abbas condemned the decision, according to a statement from his spokesperson, Nabil Abu Rudeina.
"(The decision) is condemned and rejected, and it will be followed by consequences," he said.
"The decision will disable any attempt to restore security and stability, and will promote extremism and terrorism, and will put obstacles in front of any effort by any party to create a peaceful march to security and peace," said Rudeina, calling it "a provocation and disregard for the Arab world and the international community."
Hanan Ashrawi, Member of the Palestinian Liberation Organization Executive Committee, said that Israel "is exploiting the inauguration the new American administration to escalate its violations and the prevention of any existence of a Palestinian state."
With Trump in office, Netanyahu has been under pressure from his right-wing government to accelerate settlement construction.
On Sunday, he rebuffed an attempt by some politicians to annex parts of the West Bank, including Maale Adumim, one of the largest settlements, which is located just outside Jerusalem.
This announcement comes less than 24 hours after the Trump Administration seemed to scale back expectations of an imminent move of the US embassy in Israel from Tel Aviv to Jerusalem.
In his first briefing, White House press secretary Sean Spicer said discussions were in their earliest stages and no decision had yet been made.
The new construction comes nine days after a peace conference in Paris
which called for Israel and the Palestinians to embrace a two-state solution and find their way back to the negotiating table.
The conference, which was attended by representatives from 70 countries, was labeled "useless" by Netanyahu, with neither Israel or the Palestinians represented.
Netanyahu told his Cabinet that the conference was coordinated by the French and the Palestinians and sought to "force terms on Israel that conflict with our national needs."
Instead, he appeared to look forward to last Friday's inauguration of Trump, saying, "This conference is among the last twitches of yesterday's world. Tomorrow's world will be different -- and it is very near."