JERUSALEM, June 7 (Jeffrey Heller/Reuters) - Israel shrugged off on Thursday U.S. criticism of its plans to erect 851 more settler homes in the occupied West Bank, projects that appeared aimed at placating settlers angry with Prime Minister Benjamin Netanyahu.

They need to condemn. We need to build, Construction and Housing Minister Ariel Attias told Army Radio.

Facing down settlers and their supporters in parliament and in his right-wing Likud party, Netanyahu defeated on Wednesday an attempt by ultranationalist lawmakers to legalize all settler homes on private Palestinian land in the West Bank.

The anti-settlement Peace Now group says some 9,000 of the 65,000 housing units Israel has built for the 311,000 settlers in the territory fall into that category. Some 2.5 million Palestinians live in the West Bank.

The bill was proposed after the Supreme Court ordered the removal by July 1 of five apartment buildings erected on disputed tracts in the settlement of Beit El.

Netanyahu said he had no choice but to abide by the ruling, which put him at odds with an increasingly rebellious core of staunchly pro-settler activists and lawmakers in his party.

But he scrambled to soften the blow by promising shortly after the legislation was voted down to build 851 new homes in West Bank settlements.

Washington has repeatedly clashed with Israel over settlement expansion and was swift to voice its displeasure.

We are very clear that continued Israeli settlement activity in the West Bank undermines peace efforts and contradicts Israeli commitments and obligations, U.S. State Department spokesman Mark Toner said, in a refrain long familiar to Israeli leaders.

HELD BACK

U.S.-sponsored peace talks broke down in 2010 in a row over settlements and Palestinian leaders say they will not return to the negotiating table until Israel halts all building on land they say is rightfully theirs.

The World Court considers Jewish settlements, built on territory that Israel captured in a 1967 war, illegal.

Attias, in a Reuters interview, said the U.S. criticism came as no surprise and there would have been stronger condemnation of Israel if the law to legalize the Beit El homes had passed.

It's not as if we can build as much as we want to, he said. We appreciate what the Americans ask from us, so we build a lot less than what is needed there. There is natural growth: people get married, they want to live near their parents, they want to expand their house.

Palestinian Authority spokesman Ghassan Khatib said the United States and other countries must make a bigger effort to force Israel to abide by international law and put an end to Israeli settlements.

At Beit El, settlers set up protest tents outside the five dwellings that are to due to be lifted from their foundations and relocated to an adjacent military installation, in what is likely to be a complex engineering project,

There is a lot of anger, Reut Lerer, one of the residents slated to move, told reporters.

We feel abandoned. We are fighting for the Land of Israel. Demolishing homes here is an injustice ... We cannot let this pass quietly and we all feel there should be protests. (Additional reporting by Ari Rabinovitch and Maayan Lubell in Jerusalem and Ali Sawafta in Ramallah)