RAMALLAH, Oct 15 (Reuters) - Palestinian negotiator Saeb Erekat accused Israel on Friday of choosing settlements over peace in a protest over publication of a plan to build 238 housing units in East Jerusalem.

Israel issued the building tenders on Thursday in a little-noticed move that may further complicate US-backed efforts to rescue direct peace talks with the Palestinians.

Relaunched on Sept 2, the talks are foundering over Israel's refusal to extend a 10-month settlement construction freeze that expired Sept 26.

Erekat, in a statement, said that by agreeing to publish further building plans, Israeli Prime Minister Benjamin Netanyahu has made his choice, settlements over peace, and has demonstrated why there are no negotiations today.

The United States has been making intensive efforts to keep alive direct peace talks between the sides.

Palestinians charge that Jewish settlement-building in the West Bank, land Israel captured in a 1967 war, undermines efforts to build a viable, contiguous Palestinian state.

The Israeli plan for Jerusalem calls for further construction two predominantly Jewish neighbourhoods, as Israel refers to them, in East Jerusalem and parts of the West Bank that Israel has annexed as part of its capital, in a move never recognised internationally.

They are Pisgat Zeev and Ramot, founded roughly 25 to 35 years ago respectively and now densely populated. Israel does not consider them settlements but part of its capital. Israel also captured East Jerusalem in the 1967 war.

Israeli Housing Minister Ariel Attias of the right-wing religious Shas party put out the 238 tenders as part of a blueprint for some 4,000 homes, most of which are planned to be built within Israel's recognised borders.

Attias had plans for another 1,700 homes in East Jerusalem, but has so far not published these to avoid sabotaging talks with the Americans on reviving peace negotiations, a senior Israeli official said, speaking on condition of anonymity.

Israel has insisted East Jerusalem was never part of any building freeze, though many building plans in the city were quietly put on hold after an embarrassment with Washington over tenders disclosed during a March visit by U.S. Vice President Joseph Biden.