JERUSALEM, Jan 16 (Reuters) - A plan to build 1,400 new homes for Jews on Israeli-annexed West Bank land could be approved as early as next week by Israel's Jerusalem municipality, a city council member said on Sunday.

Meir Margalit told Reuters the Jerusalem city planning commission was set to consider on Jan. 24 the building plans for Gilo, an urban settlement built on land Israel captured in a 1967 war and annexed to Jerusalem.

It is another nail in the peace process's coffin, Margalit, a member of the left-wing opposition party Meretz, said about the project, which seemed certain to draw Palestinian and international condemnation.

U.S. Secretary of State Hillary Clinton last week denounced the demolition of a derelict hotel in East Jerusalem to make way for 20 homes for Jews in a settlement project. Prime Minister Benjamin Netanyahu responded publicly by saying Jews had a right to live anywhere in Jerusalem.

Palestinians want East Jerusalem, which Israel captured along with the West Bank, as the capital of the state they intend to establish. Israel considers all of Jerusalem its capital, a claim that is not recognised internationally.

A statement by Jerusalem municipality said it was obligated by law to discuss the plan for 1,400 housing units, which was submitted by private entrepreneurs.

The proposal would still need to be approved by Israel's Interior Ministry if it is adopted at a municipal level.

I see no reason not to authorise the plan, Elisha Peleg, a member of the Jerusalem city planning commission, told Reuters. Foreign governments intervening in the internal affairs of Jerusalem's municipality is illegitimate and we reject it.

About 500,000 Israelis live in the West Bank and East Jerusalem among 2.7 million Palestinians. Some 40,000 Israelis live in Gilo.

The World Court has said settlements Israel has built on occupied land are illegal. Palestinians say the enclaves could deny them a viable state. (Writing by Maayan Lubell; Editing by Peter Graff)