Israeli settlements condemned by European states
British Foreign Secretary William Hague called the Israeli move "provocative and unhelpful".
France and Germany said it would hinder efforts for peace.
Israel announced its intention to speed up settlement building a day after the Palestinians won full membership of the UN cultural organisation, Unesco.
"This settlement building programme is illegal under international law and is the latest in a series of provocative and unhelpful settlement announcements," Mr Hague said in a statement.
He also criticised Israel's temporary withholding of Palestinian tax revenues, which was announced at the same time, and called for a reversal of both decisions.
French foreign ministry spokesman Bernard Valero said: "Settlement building in the West Bank as well as in east Jerusalem is illegal in international law and is a threat to the two-state solution".
Germany joined the UK and France in condemning the Israeli announcement.
Steffen Seibert, Chancellor Angela Merkel's spokesman, said building settlements in occupied areas "hinders the goal we all must have of a two-state solution and is unjustifiable".
Israeli Prime Minister Benjamin Netanyahu's office said on Tuesday that a plan to build 2,000 new apartments in the West Bank and East Jerusalem would be accelerated.
The step has been seen by Palestinians as a punishment for their Unesco membership bid, and Palestinian Authority President Mahmoud Abbas has said the move would speed up the destruction of the peace process.
Israel also said it would temporarily freeze transfers to the Palestinian Authority, which amount to around half of the PA's domestic revenue base.
An Israeli foreign ministry spokesman said the move was "a response to unilateral measures aimed at confronting Israel at the UN and elsewhere on the international scene".
Mr Netanyahu said on Wednesday: "We will continue developing Jerusalem, its neighbourhoods, and people.
"This is our right and obligation - not as punishment to the Palestinians but as our basic right."
Peace talks between the Palestinians and Israel broke down more than a year ago. The Palestinians are demanding an end to settlement building.
Almost 500,000 Jews live in settlements on occupied territory. The settlements are illegal under international law, although Israel disputes this.
