Britain summoned Israel's ambassador for talks about the Jewish state's new settlement plans on Monday, saying it "deplores" the proposals and threatening a "strong reaction".
Foreign Office minister Alistair Burt called in Daniel Taub to express Britain's concerns about the impact all settlement buildings, particularly those in east Jerusalem, could have on peace talks with the Palestinians.
"We deplore the recent Israeli government decision to build 3,000 new housing units and unfreeze development in the E1 block (a controversial corridor of West Bank land east of Jerusalem). This threatens the viability of the two-state solution," the Foreign Office said in a statement.
"We have called on the Israeli government to reverse this decision."
In an earlier statement, the ministry said: "We have told the Israeli government that if they go ahead with their decision, then there will be a strong reaction."
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Israel's announcement about the 3,000 Jewish settler homes in occupied Palestinian territories came in response to a historic vote by the United Nations General Assembly to upgrade the Palestinians' diplomatic status.
France also summoned the Israeli ambassador on Monday, amid speculation that the two countries are considering recalling their own envoys to Israel.
A diplomatic source in London told AFP the recall of the British ambassador was an option but insisted that no decisions had yet been taken.
"The Israeli ambassador to London, Daniel Taub, has been formally summoned to the Foreign Office this morning by the minister for the Middle East, Alistair Burt. The minister set out the depth of the UK's concerns," the Foreign Office statement said.
"Any decision about any other measures the UK might take will depend on the outcome of our discussions with the Israeli government and with international partners including the US and European Union."