More than 2,000 housing units will begin construction immediately, a statement from Israel's Defence Ministry said.
The statement said defence minister Avigdor Lieberman and Israeli Prime Minister Benjamin Netanyahu agreed to approve the construction of the houses.
The election of Donald Trump, who has promised to be far more supportive of Israel than his predecessor, has emboldened Israel's settlement movement.
It comes days after the government approved an additional 2,500 homes in the West Bank and hundreds more in east Jerusalem.
The Palestinians claim both areas, occupied by Israel in the 1967 Mideast war, as parts of a future state.
"We are in a new period in which life in Judea and Samaria are back on track," Mr Lieberman said.
The announcement comes as Israel prepares to uproot an illegal settlement outpost in the West Bank.
Israel's military ordered residents of the Amona outpost to evacuate the area within 48 hours, days before a deadline for its demolition.
Israel's Supreme Court ruled in 2014 that Amona was built on private Palestinian land and must be demolished. It later set 8 February as the final date for it to be destroyed.
Amona is the largest of around 100 unauthorised outposts erected in the West Bank without permission but generally tolerated by the government.
Israeli settlement building in the West Bank and East Jerusalem over the 1967 Green Line is considered illegal under international law.
Both the United Nations and the European Union have condemned the accelerated settlement expansion initiatives.
Settlement building, which has increased each year under Mr Netanyahu's premiership, is viewed as one of the major obstacles to a lasting peace deal in the Israeli-Palestinian conflict.
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