White House spokesman Robert Gibbs and UN Secretary General Ban Ki-moon said the move would hamper Israeli-Palestinian peace talks.
Their remarks came after Israel's interior ministry approved planning applications for the new units.
The planning and construction committee authorised the expansion of Gilo, which is built on land captured in 1967. The land was later annexed to the Jerusalem municipality.
A spokesman for Palestinian Authority President Mahmoud Abbas said the planning approval was "yet another step that shows and proves Israel is not ready for peace".
Nearly 500,000 Jews live in more than 100 settlements built on occupied territory in the West Bank and East Jerusalem.