JERUSALEM (Reuters) -- Israel said on Tuesday it had granted legal status to three settlement outposts in the occupied West Bank, a move that could shore up the governing coalition but which drew sharp Palestinian and European criticism.

Israeli officials played down the decision taken by a ministerial committee late on Monday, rejecting accusations that the government had effectively created the first new Jewish settlements for more than 20 years.

The three outposts -- Bruchin, Sansana and Rechelim -- were built on land Israel declared "state-owned" in the West Bank, an area it captured in the 1967 war and which Palestinians want as part of a future state.

"The panel decided to formalize the status of the three communities ... which were established in the 1990s following the decisions of past governments," said a statement issued by Prime Minister Benjamin Netanyahu's office.

Most of the international community views all Jewish settlements in the West Bank as illegal. However, Israel distinguishes between settlements it has approved and the outposts which were never granted official authorisation.

Some 350 settlers live in Bruchin and 240 in Rechelim, both in the northern part of the West Bank, while Sansana, with a population of 240, lies further to the south.

None of the outposts had been granted final Israeli legal status as formal communities.

Netanyahu, though politically strong, has faced questions within his own Likud party and other right-wing coalition partners about his commitment to settlement, especially after police three weeks ago evicted settlers from a building they said they had bought from a Palestinian in the city of Hebron.

Palestinian anger

Condemning the Israeli decision, Nabil Abu Rdainah, a spokesman for President Mahmoud Abbas, said "Netanyahu has pushed things to a dead end yet again".

Germany's Foreign Minister Guido Westerwelle also criticized the Israeli move, saying Berlin had "pushed in talks with the Israeli side over the past days for this not to happen."

"I'm very worried about the plan to legalize Israeli settlements in the West Bank," said Westerwelle.

Palestinians are awaiting a formal response from Netanyahu to a letter they sent last week in which Abbas repeated his call for an end to all settlement activity. Peace talks have been frozen since 2010 over the issue.

For years, Israel has promised its main ally, the United States, that it will remove dozens of outposts but has done little to fulfill the pledge in the face of domestic political pressure.

Peace Now, an Israeli anti-settlement group, said the change of the three outposts' status marked the first time since 1990 that the Israeli government had established a new settlement, adding that the four-man committee did not have the authority to approve the change.

"The Netanyahu government is trying to deceive the public and hide its true policy," it said in a statement. "This announcement is against the Israeli interest of achieving peace and a two-state solution."

Separately, Netanyahu moved to patch up differences within his coalition over the future of a neighborhood threatened with demolition inside the West Bank settlement of Beit El.

The dispute over who owns the land on which five dwellings in the Ulpana neighborhood have been built, has exposed a fault line in the cabinet between members of Netanyahu's Likud party and his more centrist defense minister, Ehud Barak.

One right-wing cabinet member cautioned the coalition could fall if the homes were destroyed.

Israel has promised the Supreme Court, which is looking into Palestinian claims of ownership to the land, that it will evict the settlers in the disputed homes by May 1.

Barak, drawing criticism from several Likud ministers and legislators, has said the government would stand by that pledge.

But in an interview with Army Radio on Tuesday, Netanyahu said the government would seek a solution to the problem and ask the Supreme Court to push back the May 1 deadline.