Avigdor Lieberman said in a tweet on Friday that the construction of new homes would be the "best answer" to the killing of 31-year-old Yotam Ovadia by a Palestinian teenager in the Geva Binyamin (Adam) settlement the night before.
Israel's settlement construction in the occupied West Bank is regarded as illegal under international law.
Palestinians say that continued construction of illegal settlements on their land will ruin the chances of future Palestinian state constituting of the occupied West Bank, Gaza, and East Jerusalem as its capital, which was occupied during the 1967 war.
According to the Israeli military, 17-year-old Ahmad Tareq Youssef Abu Ayyush snuck into the settlement - situated some 20km northeast of Jerusalem - on Thursday evening before entering a house and stabbing three people.
Abu Ayyush, from the Palestinian village of Kobar, was later shot and killed at the scene.
The Israeli army said on Friday it had set up security inspections around the village, questioned a number of his family members and suspended their work permits. Four other Palestinians were detained for questioning.
Hamas, the group that rules the Gaza Strip, issued a statement praising the attack but did not claim responsibility for it.
Spokesman Fawzi Barhoum said Abu Ayyush's actions represented "a brave operation that responds to the daily ugly crimes the occupation commits against our people".
Thursday's attack came after a period of relative calm in the West Bank, although at least 154 Palestinians have been killed in the Gaza Strip since late March during protests calling for the right of return for Palestinian refugees.
Earlier this month, Israel's parliament passed a new "nation-state" law stating the "land of Israel is the historical homeland of the Jewish people".
Opponents of the bill allege it marginalises Israel's Arab Palestinian citizens and people living throughout the occupied territories.