ARIEL SCHALIT/AP

An aerial view of the southern West Bank Jewish settlement of Negohot, bottom, and the unauthorized settlement outpost of Neguot, top, is seen in this March 2004 file photo.

JERUSALEM ( NYT) -- An Israeli government ministry has illegally financed Jewish settlement expansion in the past three years by diverting $6.6 million to build new roads, power and phone lines to communities intent on expanding control over the West Bank.

State Comptroller Eliezer Goldberg wrote in his annual report that the Housing Ministry, headed by the leader of a pro-settlements religious party that belongs to Prime Minister Ariel Sharon's ruling coalition, covertly financed construction projects without receiving cabinet or Defense Ministry approval as required by law.

It was not immediately clear whether law enforcement officials would seek to prosecute government officials as a result of the comptroller's finding. It was also unclear how the report would affect U.S. attempts to kick start the stalled "road map" peace process.

In the peace plan President Bush launched last summer, Israel is obligated to remove dozens of settlers' outposts in the West Bank and stop settlement expansion.

The comptroller's report comes just days after Israel's religious right flexed its muscles in national politics. Heavy lobbying from settlers was key in defeating a proposal Sharon put to his Likud Party on Sunday aimed at withdrawing settlers and soldiers from the Gaza Strip.

Sharon picked Effi Eitam, leader of the far-right National Religious Party, which considers the West Bank and Gaza to be part of the biblical Jewish homeland, to lead the Housing Ministry when he was re-elected prime minister in January 2003.

Eitam answered the charges Wednesday afternoon, telling Army Radio that he would put in place mechanisms that would ensure that money could not be diverted for illegal uses.

"I promise that every shekel that comes from the government will be transferred to legal activities," Eitam said.

Anti-settler activists said the report showed how settlers, who constitute about 3 percent of the 7.3 million Israelis, disproportionately influence the government.

"This is the proof. This is not something the settlers do by themselves. This is government policy," said Yariv Oppenheimer, a spokesman for Peace Now, an Israeli group that monitors settlement building.

Israeli settlement activity on the West Bank and in the Gaza Strip has always been controversial. The government has sponsored, subsidized and praised Jewish communities in these territories that Israel occupied in 1967, alternatively calling them part of the Jewish divine right to live in lands mentioned in the Bible or a cornerstone of modern Israel's national security.

The United Nations has ruled settlements illegal under international law, and Palestinian leaders say the communities are part of an Israeli land grab designed to deprive them of statehood.

The United States, while saying that settlements are an obstacle to solving the Israeli-Palestinian conflict, has never insisted upon their removal, arguing that this was an issue for final negotiations.

More than 10 years of peace talks have not yielded permanent results and during that time settlers have increased their hold on tracts of land by building the kind of unauthorized outposts mentioned in Goldberg's report. The outposts begin as a group of trailers and tents and are later connected to neighboring settlements with roads, electricity and phone lines.

About 140 settlements have been built in the West Bank and Gaza Strip since Israel captured the territories in the 1967 Middle East war.

According to Peace Now, 102 small outposts, most of them inhabited, have been built in the West Bank without government approval since Sharon took office in 2001. Most consist of small clusters of caravans on isolated hilltops.