Prime Minister Benjamin Netanyahu's office announced the move, saying it would include 100 homes in a settlement where an Israeli woman was killed last month in an attack allegedly carried out by a Palestinian assailant.
The announcement will burnish Netanyahu's right-wing credentials in a tough campaign ahead of March elections, but it could anger Biden, who is opposed to settlement expansion and has clashed with Israel over it in the past.
Israel captured the West Bank and east Jerusalem in the 1967 war, territories the Palestinians want for their future state. Nearly 500,000 Israelis live in settlements scattered across the West Bank. The Palestinians view settlements as a violation of international law and an obstacle to peace, a position with wide international support.
The Palestinian Authority's Foreign Ministry condemned the latest announcement, accusing Israel of "racing against time" to build settlements before President Donald Trump leaves office.
Trump's administration provided unprecedented support to Israel, including by abandoning a decades-old U.S. policy of opposing settlements. U.S. Secretary of State Mike Pompeo last year became the first top U.S. diplomat to visit a West Bank settlement.
Biden has pledged a more even-handed approach in which he will restore aid to the Palestinians that was cut off by Trump and work to revive peace negotiations. The two sides have not held substantive peace talks in more than a decade.
Israeli opposition leader Yair Lapid, who hopes to unseat Netanyahu in March, called the settlement announcement an "irresponsible step" that would spark a "battle" with the new U.S. administration.
"The Biden administration has not yet taken office and the government is already leading us into an unnecessary confrontation," he tweeted. "The national interest must also be maintained during elections."
The greatest threat to Netanyahu in the coming vote comes from the right, where Gideon Saar, a former ally and staunch supporter of settlements, has broken away and vowed to end his long rule. Polls show Netanyahu's Likud winning the most votes but falling short of a majority coalition in Israel's 120-seat Knesset, or parliament.