Prime Minister Benjamin Netanyahu has approved 2,500 new settler homes in the occupied West Bank, officials said Tuesday, marking a major expansion following the election of US President Donald Trump.
"In its scale and political impact it goes beyond anything we have seen in recent months," German foreign ministry spokesman Martin Schaefer told a regular media briefing.
This, and pledges to further boost settlements in future, "lead us to doubt whether the Israeli government remains committed, as it has repeatedly stated, to a two-state solution", he said.
Until now Germany - a close ally of Israel, usually very cautious in its criticism - had merely asserted that such settlements are an obstacle to the peace process, without questioning Israel's willingness to reach an eventual peace deal with the Palestinians.
Trump has signalled strong support for Israel, and Israeli rightwing politicians have sought to take advantage, with hardliners calling for an end to the idea of a Palestinian state.
Netanyahu has said he still supports a two-state solution, but reportedly told ministers Sunday that all restrictions on building settlements in east Jerusalem were being lifted.
Israel seized the West Bank and east Jerusalem in 1967. It later annexed east Jerusalem in a move never recognised by the international community.
The Palestinians see east Jerusalem as the capital of their future state, while Israel views the entire city as its capital.
Some 400,000 Israeli settlers now live in the West Bank, with another 200,000 in east Jerusalem. In comparison, about 2.9 million Palestinians live in the West Bank and east Jerusalem.