Jewish groups have joined the British government in expressing outrage after Israel retroactively legalised almost 4,000 West Bank settlement units previously deemed illegal under Israeli law because they are built on privately-owned Palestinian land.

It comes after a Monday night sitting in the Knesset (Parliament) in which Israeli politicians passed the Outpost Bill, also referred to as the Legalisation Law. Earlier in the day, Israeli Prime Minister met Theresa May at Downing Street, when he told her: “We will never give up our quest for peace.”

Netanyahu supported the bill, which covers more than 2,000 acres, in order to place his coalition partners, after Israel’s Supreme Court ordered the demolition of the Amona outpost near Ramallah, where about 40 settler units had built.

Britain’s Middle East Minister Tobias Ellwood said: “It is of great concern that the bill paves the way for significant growth in settlements deep in the West Bank, threatening the viability of the two-state solution.”

He added: “As a longstanding friend of Israel, I condemn the passing of the Land Regularisation Bill by the Knesset, which damages Israel’s standing with its international partners.”

A Board of Deputies spokesperson said: “The law will be challenged in the Supreme Court, which will be the ultimate arbiter of its constitutional validity. Any further comment by the Board of Deputies will be considered at the conclusion of the judicial process.”

Paul Charney, chairman of the Zionist Federation said: “It is clear that this bill is not a simple one and that there are impassioned opinions for and against. As an umbrella organisation, the Zionist Federation represents groups on both sides of the argument. If this bill is in violation of legal norms, it will be scrutinised and even struck down by the Israeli Supreme Court – another example of the importance of checks and balances under the rule of law.”

New Israel Fund (NIF) UK chief executive Adam Ognall said: “Its intent is to strip Palestinian land owners of their land so that Israeli settlements can be built in the West Bank. This is a terrible step towards ending Israel’s status as a democracy and erasing the Green Line.”

He added: “It is no small thing that Israel’s attorney-general says he will not defend the Bill before the Supreme Court. This isn’t the Israel we want to see.”

Some Israeli politicians, such as former foreign minister Tzipi Livni, have said the bill “legalises theft,” because the outposts it legalises are built on privately-owned Palestinian land. In many cases, ownership has been proven before the courts.

Opposition leader Isaac Herzog likened it to a “freight train,” saying: “Its cars will carry international indictments against Israeli and Jewish soldiers and officers. This indictment will be signed by the prime minister of Israel.”

Yachad director Hannah Weisfeld said: “This is a disastrous step, taken in blatant disregard for both Israeli and international law. It will do significant damage, both to the possibility of a political resolution to the conflict and to the rule of law in Israel.”

Echoing Livni, she added: “The Knesset has now legalised the theft of land owned by non-citizens in territory outside its legal jurisdiction. This demonstrates that the commitment to peace Benjamin Netanyahu made in his meeting this morning with Theresa May was nothing more than lip service.”

Netanyahu heads a right-wing coalition with a slim majority, which comprises Jewish Home, a party led by former settler leader Naftali Bennett, who has been pushing for retroactive legalisation of West Bank settlements since 2010.

This week also saw “massive” house demolitions in Palestinian of Kalansuwa, Umm al-Hiram and East Jerusalem, which campaigners said had “upped the price” of dismantling Amona.