Ban Ki-moon, the UN secretary-general, has termed Israeli plans to press ahead with the construction of more than 1,000 homes in two occupied West Bank settlements "a violation of international law", according to his spokesperson.
The Israeli announcement to authorise the building of 550 housing units in Bruchin and 537 units in Itamar was also met with condemnation by the United States and Palestine.
"These are unhelpful decisions that undermine progress towards the two-state solution," Martin Nesirky, Ban's spokesperson, said on Friday, a day after the announcement.
"They constitute a deeply worrisome trend at a moment of ongoing efforts to re-launch peace negotiations.''
On Thursday, Rami Hamdallah, the Palestinian prime minister, said the plan to build the settlements was "killing the two state solution".
The continued building of Israeli settlements lies at the heart of an impasse over restarting negotiations on the terms of a Palestinian state alongside Israel.
The Palestinians hope to build their state in the West Bank, Gaza and east Jerusalem, lands Israel occupied in 1967.
The United States is currently trying to get the long dormant peace talks back on track but the Palestinians say they will not return to the negotiating table as long as Israeli settlement construction continues.
Also on Friday, unidentified vandals set two vehicles on fire in an Arab neighbourhood of Jerusalem, in what police say appears to be the latest attach carried out by Jewish extremists.
Police spokesman Micky Rosenfeld said the words "price tag" were found sprayed on a wall near the cars in Sheikh Jarrah.
The phrase is usually used by Jewish extremists to protest what they perceive to be the Israeli government's pro-Palestinian policies, and to let Palestinians know who attacked them.
Vandals have targeted mosques, churches, dovish Israeli groups and even Israeli military bases with "price tag" graffiti over the years.
In recent weeks, there has been a steady stream of such incidents, including an Arab Christian graveyard vandalised on Thursday and a Jerusalem church defaced two weeks ago.
Rosenfeld said police were searching for the perpetrators.