In a 39-2 vote, with 12 abstentions, delegations passed the resolution on Thursday demanding that Israel should "prevent any new installation of settlers in the occupied territories".
The two votes against the resolution came from Australia and the United States.
The resolution, titled Israeli Settlements in the Occupied Palestinian Territory, also applied to traditionally Arab parts of East Jerusalem and the Golan Heights, which Israel captured from Syria in the 1967 Middle East war.
The resolution called for Israel to take measures to guarantee the safety of Palestinian civilians.
Censure by the UN watchdog brings no penalties but spotlights a government's record, and delegations lobby hard in an effort to avoid it.
"I urge all members ... to judge Israel by what it does and not by what it talks"
Muhammad Abu-Koash, Palestinian ambassador
Israel's Ambassador Itzhak Levanon said it was a one-sided resolution that brought shame on the United Nations, noting Israeli plans to pull soldiers and settlers out of the Gaza Strip and several parts of the West Bank in a few months.
"If there is a dismantlement of settlements on the ground that will begin in a matter of weeks, what is the relevance of such a resolution?" Levanon said. "The adoption of this resolution is in fact a one-sided judgment on outstanding issues."
Muhammad Abu-Koash, the Palestinian ambassador, said that listening to Levanon, one could imagine that "Palestinians are the occupiers and the Israelis are the occupied".
"I urge all members ... to judge Israel by what it does and not by what it talks," Abu-Koash told delegates.
Former US senator Rudy Boschwitz, head of the US delegation, said it was unfair to single out Israel.
Since capturing the West Bank and Gaza Strip in the 1967 war, Israel has built numerous settlements in the two territories, in which Palestinians hope to form a future state.
As part of the internationally backed road map peace plan, Israel is to freeze construction in settlements.
The commission also passed a resolution condemning the use of force by Israel against Palestinian civilians by a 29-10 vote.
A third resolution, calling on Israel to respect the human rights of Arabs living in the Golan Heights, was adopted by a 32-2 vote.