JERUSALEM (Reuters) - Israel said on Wednesday that new houses it was building in the occupied West Bank did not constitute a new settlement, dismissing a strong U.S. condemnation of project.

"The 98 housing units approved in Shilo (settlement) do not constitute a 'new settlement'. This housing will be built...in the existing settlement of Shilo and will not change its municipal boundary or geographical footprint," a Foreign Ministry statement said.

The United States strongly condemned Israel's plan and the State Department said it would damage prospects for a two-state solution.

(Writing by Ori Lewis, Editing by Angus MacSwan)