NEW YORK, Aug 21: The Bush administration has signalled approval of growth in some Israeli settlements in the West Bank in a policy change aimed at helping Prime Minister Ariel Sharon, the New York Times said on Saturday.

The paper quoted unnamed officials as saying the administration now supported construction of new homes in some settlements as long as the expansion does not extend into undeveloped parts of the occupied territory.

Until now the US position has been that all settlement activity should be frozen.

The Times said the new policy emerged this week when Washington officials failed to criticize an Israeli announcement that 1,000 building tenders would be issued for subsidized apartments for settlers.

A settlement monitoring group said US approval for new construction on settlements would undermine the stalled Israeli-Palestinian peace process.

Peace Now said it "creates an opening for a new wave of construction in all the settlements and distances Israel from resolving the conflict with the Palestinians".

The building announcement appeared to be an attempt to defuse resistance from rebels in Ariel Sharon's Likud party angered by a bid to bring the centre-left opposition Labour party into government to boost the prime minister's Gaza pullout plan.

But it failed, and the party dealt Mr Sharon a humiliating rebuff on Wednesday.

The plan to quit the Gaza Strip and uproot 21 Jewish settlements there, along with four others in the West Bank, is strongly opposed by the Likud settler lobby that says the withdrawal is tantamount to "rewarding Palestinian terrorism".

The paper quoted a Bush administration official as saying Washington had decided not to compound Sharon's political troubles at a time when he was battling hardliners.

"Some American officials acknowledged, in addition, that President Bush was reluctant to criticize Israel during his re-election campaign, which is counting on support from conservative supporters of Israel," the paper reported.

Prominent Israeli left-wing legislator Yossi Sarid said Sharon was taking advantage of the US campaign.

"The Israeli government is exploiting the US election campaign and is turning the US administration into a laughing stock by continuing to build in the settlements," he said.-Reuters