The United States on Monday called it "a bad idea" to rename the Palestinian National Authority to State of Palestine, insisting the statehood can only be achieved through a negotiated settlement with Israel.

"Our policy on continuing to call it the Palestinian Authority, until such time that there is a negotiated agreement for a state with borders, will not change," State Department spokeswoman Victoria Nuland told reporters at a regular press briefing.

"Well you can't create a state by rhetoric and with labels and names," she added. "You can only create a state, in this context, through bilateral negotiations."

Palestinian President Mahmoud Abbas issued a decree on Sunday, ordering the use of the name of State of Palestine on all official stamps including identity cards, driving licenses, official documents, passports and official letterheads.

It was the first official step taken toward statehood since the UN General Assembly granted the Palestinians an upgraded status of a non-member observer state in November last year.

Israeli Prime Minister Benjamin Netanyahu on Sunday expressed his opposition to the move, saying a Palestinian state can only be born through a peace treaty with Israel.

Nuland said US special envoy David Hale would be in Jerusalem for meetings on Monday night, and he will see Abbas the next day.

"We're certainly going to tell them that it's a bad idea and it doesn't change anything for the Palestinian people," she said. " And if they really want to change things for the Palestinian people, they need to get back to the table."

Israel has announced expanded settlement building on the occupied land since the Palestinians became a non-member UN observer state, a move that has sparked an outcry from Washington and European capitals.