"These actions heighten tensions and undermine international efforts to create conditions for fruitful negotiations to achieve peace."
The homes from where the Palestinians were evicted would reportedly give way to a hotel project believed to have been sanctioned by Israel.
In 1982, Israeli settler organisations began demanding rent from the Palestinian families of Sheikh Jarrah, who at that point had been living in the neighbourhood for almost 30 years - and when many of the families refused to pay this rent, the first eviction orders were issued.
The legal proceedings continued over the years, and in 2006 it was ruled by court that the settler organisations did not have rights to the land, and the Israeli land registration department agreed to revoke the settler associations' ownership.
Despite pending appeals and the lack of legal ownership of land in the neighbourhood, the settler organisations sold their property claim in 2008 to an investment company.
The British consulate which, along with other foreign missions, is located in Sheikh Jarrah where the Palestinian families had been living for more than half a century, said it was "appalled".
The consulate said in a statement: "The Israelis' claim that the imposition of extremist Jewish settlers into this ancient Arab neighbourhood is a matter for the courts ... is unacceptable.
"These actions are incompatible with the Israeli professed desire for peace.
"We urge Israel not to allow the extremists to set the agenda."
Saeb Erekat, a senior Palestinian negotiator, said: "Tonight, while these new settlers from abroad will be accommodating themselves and their belongings in these Palestinian houses, 19 newly homeless children will have nowhere to sleep.
"If the Israeli prime minister continues with settlement activities, he will undermine the efforts to revive the peace process."
But Yakir Segev, a member of Jerusalem's municipal council, told Al Jazeera: "These are not actions made by Israel or the Israeli government. This is a matter of the court.
"It is a civil dispute between Palestinian families and those of Israeli settlers, regarding who is the rightful owner of this property"
Yakir Segev, member of Jerusalem's municipal council
"It is a civil dispute between Palestinian families and those of Israeli settlers, regarding who is the rightful owner of this property ... Israeli law is the only law we are obliged to obey.
"This is not part of an Israeli consipiracy ... The court decided that the Arab families are not the rightful owners of the property and this is why they had to be evicted.
"Jerusalem is one united city, in the same way that Arabs can purchase houses and land in the west part of Jerusalem, it's the same for Jews."
The eviction on Sunday comes amid international calls for Israel to halt settlement activity on occupied Palestinian land.