UN leader Ban Ki-moon accused Israel of provoking the international community by approving new settlements in Palestinian territories while efforts were being made to jumpstart peace talks.
Ban on Friday added that no new settlement would get international recognition as he highlighted growing frustration.
The UN statement was released by Ban's spokesman hours after the Peace Now group said Israel had formally submitted plans for a new settlement neighborhood in annexed east Jerusalem -- the sector's first new district in 14 years.
"The secretary general is deeply concerned at continued efforts to advance planning for new Israeli settlements in occupied East Jerusalem," said UN spokesman Martin Nesirky.
"Recent developments in this regard have been unacceptable, particularly as efforts are ongoing to resume negotiations, and run contrary to the Quartet’s call on the parties to refrain from provocations."
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The diplomatic Quartet on the Middle East -- the United States, Russia, the European Union and the United Nations -- launched a new bid to restart peace talks on the day that Palestinian president Mahmud Abbas made an application for Palestinian membership of the United Nations.
The United States has vowed to veto any bid for UN Security Council backing for the membership bid, which has come out of mounting Palestinian frustration at the deadlock in peace efforts.
Israel and the United States have said that only direct negotiations can set up the conditions for a Palestinian state.
"The secretary general reiterates that settlement activity in East Jerusalem and the remainder of the West Bank is contrary to international law and to Israel’s obligations under the Roadmap, and must cease," said the UN statement.
"He further reiterates that the international community will not recognize unilateral actions on the ground and that the status of Jerusalem can only be resolved through negotiations."
The Palestinian Authority has rejected direct talks with Israel since a freeze on settlement building was ended in September 2010.