The United States called on Israel to halt settlement construction in East Jerusalem, which has become the main obstacle to reviving peace talks between Israel and Palestine authorities, Haaretz newspaper said Monday.

Palestinian authorities recently agreed to hold indirect talks with Israel mediated by the United States after a 15-month break. At the same time the Israeli government announced plans to build 1,600 new housing units in East Jerusalem, which has prompted strains in U.S.-Israeli relations.

Haaretz said that the current crisis in U.S.-Israeli relations was the most serious with the Americans since the confrontation between then U.S. Secretary of State Henry Kissinger and Yitzhak Rabin in 1975 over the U.S. demand for a partial withdrawal from the Sinai Peninsula.

On Saturday, U.S. Secretary of State Hillary Clinton called the announcement a "deeply negative signal about Israel''s approach to the bilateral relationship...and had undermined trust and confidence in the peace process."

The United States has demanded Israel take steps to restore confidence in bilateral relations and permit the resumption of peace talks with the Palestinians.

Haaretz said the United States expects Israel to investigate the process that led to the announcement of construction plans during U.S. Vice President Joe Biden''s visit, and to reverse the decision by the Jerusalem District Planning and Building Committee of approving the construction of 1,600 new housing units in Ramat Shlomo.