Israel's government hopes to encourage more people to move to the communities on the "national priorities" list. The last version of the list was approved in 2012.
The Israeli anti-settlement group Peace Now said the list approved Sunday increased the total number of settlements eligible for subsidies from 85 to 91, virtually all in areas Israel would likely have to evacuate to make way for a Palestinian state.
Lior Amihai of Peace Now said three of the settlements added to the list had begun as rogue settlements that were established without formal government consent and then legalized retroactively.
Hanan Ashrawi, a member of the Palestinian negotiating team, said Sunday's vote affirms Palestinian suspicions that Israel seeks the diplomatic shield of negotiations, without being willing to reach an actual partition deal.
"This is exactly what Israel wants, have a process for its own sake, and at the same time have a free hand to destroy the objective of the process," he said. "This will have a destructive impact (on the talks), and it seems to me it's up to the sponsors, the United States and the international community, to make Israel desist immediately."
Israeli government spokesman Mark Regev said that in the case of settlements, any housing or infrastructure subsidies require additional government approval.
Four Israeli ministers abstained from the Cabinet vote, citing the potential harm to negotiations.
"To include settlements that until recently were illegal, when it's doubtful that they will remain a part of Israel, and to disproportionately invest in them I think it is not the time, politically speaking and socioeconomically speaking," Environment Minister Amir Peretz told Israel Radio.
Peace negotiations began in Washington last week, and will continue in Jerusalem next week. The U.S. wants a deal on the terms of a Palestinian state within nine months.
As part of the talks, Israel is to free 26 long-held Palestinian prisoners on Aug. 13, chief Palestinian negotiator Saeb Erekat. It would be the first of four groups of a total of 104 veteran prisoners to be freed over the next few months.
The release is part of a U.S.-brokered deal that cleared the way for the resumption of talks.
Associated Press writer Mohammed Daraghmeh in Ramallah, West Bank, contributed reporting.