* West Bank settlement plans coincide with prisoner release
* Peace talks resumed on July 30 after three years
* Palestinians condemn new housing but negotiations on track
* First Palestinian prisoners due to be released on Tuesday (Adds comments by Israeli cabinet minister)
By Jeffrey Heller
JERUSALEM, Aug 11 (Reuters) - Israel moved forward on Sunday with plans to build nearly 1,200 new homes for Jewish settlers, holding fast to a defiant settlement policy just days before its expected release of Palestinian prisoners.
Israel has made a push on settlements since the resumption on July 30 of U.S.-brokered talks on Palestinian statehood, signalling its intention to continue to build in major enclaves it wants to keep in any future peace deal.
Israeli media, in unconfirmed reports, have suggested Sunday's housing plans were disclosed to Washington in advance and were aimed partly at overcoming opposition within the pro-settlement cabinet to prisoner releases designed to spur negotiations halted three years ago.
"I saw that important newspapers reported this morning that there is purportedly some kind of coordination regarding the construction," Housing Minister Uri Ariel, a member of the ultranationalist Jewish Home party, said on Army Radio.
"I very much believe the newspapers and the media but I don't know whether I can authenticate this," he said, calling the "release of terrorists" unjust.
Israel's Housing Ministry said on its website that tenders were issued for building 793 new apartments in areas of the West Bank that Israel annexed after capturing the territory and the eastern part of Jerusalem in the 1967 Middle East war.
Plots for the construction of 394 more units were being sold in Ariel, Efrat, Maale Adumim and Betar, settlements in areas Israel has said it aims to retain in any land-for-peace accord.
While condemning settlement expansion, Palestinians have stopped short of threatening outright to abandon the peace negotiations, which are due to go into a second round on Wednesday in Jerusalem after a session in Washington.
"The international community must stand with this peace process and must stand shoulder to shoulder with us and hold Israel accountable for its continuing settlement activities," Palestinian chief negotiator Saeb Erekat told Reuters.
Israeli Finance Minister Yair Lapid, whose centrist party is right-wing Prime Minister Benjamin Netanyahu's biggest partner in the governing coalition, called the decision to issue the settlement housing tenders "unhelpful to the peace process".
Israel is expected to free, on Tuesday or Wednesday, a first group of 26 Palestinian prisoners out of a total of 104 Arab inmates whose release was approved last month to help restart the talks.
An Israeli cabinet committee was to convene later on Sunday to finalise a list of 26 prisoners for the first release, as families of those killed in Palestinian attacks appealed against the move. The High Court usually opts not to intervene.
Palestinian President Mahmoud Abbas had demanded the release of prisoners held since before a 1993 interim peace accord took effect. Israel has jailed thousands more Palestinians since then, many for carrying out deadly attacks.
Drawing Palestinian anger, Israel's military-run Civil Administration in the West Bank gave preliminary approval on Thursday for the construction of more than 800 new settler homes - some of them in isolated settlements - but said it needed government approval before building could begin.
Most world powers regard all the settlements as illegal and Palestinians say the enclaves could deny them a viable and contiguous state.
Some 500,000 Israeli settlers live in the West Bank and East Jerusalem amid 2.5 million Palestinians. Israel withdrew in 2005 from the Gaza Strip, which is now governed by Hamas Islamists opposed to permanent co-existence with the Jewish state. (Editing by Andrew Roche)