Foreign Ministers from the Group of Seven (G7) major democracies on Thursday denounced Israel's move to expand its settlements in the occupied West Bank, saying it was "counterproductive to the cause of peace".

Israel announced last month that it was going to legalise five outposts in the West Bank, establish three new settlements, and seize huge swathes of land where Palestinians seek to create an independent state.

The G7 - which includes the United States, Britain, Canada, Japan, France, Germany and Italy - condemned the move and urged Israel to reverse its decision. "We reaffirm our commitment to lasting and sustainable peace ... on the basis of the two-State solution," the statement said.

The G7 foreign ministers also called on Israel to release all remaining withheld tax revenues to the Palestinian Authority, saying maintaining economic stability in the West Bank was "critical for regional security".