RNA - A spokeswoman for Jerusalem al-Quds municipality said the city's planning committee made the approval on Wednesday.
The news was swiftly denounced by the Palestinians as a violation of international law.
The construction of the new units will almost triple the number of settler homes in the Nof Zion settlement.
Nof Zion currently has 91 dwellings and is surrounded by Palestinian houses in the Jabel al-Mukaber neighborhood.
Wasel Abu Yousif, a member of the Palestine Liberation Organization (PLO), condemned the construction plan in Jabel al-Mukaber as "a challenge to all the calls by the international community" to halt settlement building.
Last week, Israeli authorities approved plans for the construction of more than 2,600 settler units in the occupied West Bank, drawing condemnation from Palestinians and the European Union.
About 600,000 Israelis live in over 230 illegal settlements built since the 1967 Israeli occupation of the Palestinian territories of the West Bank and East Jerusalem al-Quds.
Much of the international community regards the Israeli settlements as illegal because the territories were captured by Israel in a war in 1967 and are hence subject to the Geneva Conventions, which forbid construction on occupied lands.
Palestinians want the West Bank as part of a future independent Palestinian state, with East Jerusalem al-Quds as its capital.
The last round of Israeli-Palestinian talks collapsed in 2014. Among the major sticking points in those negotiations was Israel’s continued settlement expansion on Palestinian territories.