William Hague has warned that settlement building threatens the prospects of peace
The UK has summoned Israel's ambassador in London over the plans to expand settlement building in the occupied Palestinian territories.
The Foreign Office warned of a "strong reaction", but dismissed reports that the British ambassador in Tel Aviv could be withdrawn, as "speculation".
Israel authorised 3,000 additional housing units a day after the UN voted to upgrade Palestinian status.
The UN expressed "disappointment", but Israel has vowed to continue building.
The country's ambassador to London, Daniel Taub, has been has been called to the Foreign Office for a meeting with Alistair Burt minister for the Middle East.
'Reconsider'
The government said Mr Burt would "set out the depth of the UK's concern about decisions concerning all settlement building".
A Foreign Office spokesman said: "The Foreign Secretary [William Hague] has consistently made it very clear that settlement building, such as the recent Israeli government decision to build 3,000 new housing units, threatens the two-state solution and makes progress through negotiations harder to achieve.
"We have called on the Israeli government to reconsider. We have told the Israeli government that if they go ahead with their decision, then there will be a strong reaction."
UN Secretary-General Ban Ki-moon said Palestinians in East Jerusalem could be completely cut off from the rest of the West Bank by the proposed development.
But, at a meeting on Sunday of the Israeli cabinet, Prime Minister Benjamin Netanyahu condemned the Palestinian campaign at the UN as a "gross violation" of previous agreements with Israel.
He brushed off international criticism of Israel's settlement plans, saying: "We will carry on building in Jerusalem and in all the places that are on the map of Israel's strategic interests."
Two decades of on-off negotiations between Israel and the Palestinian Authority have failed to produce a permanent settlement, with the latest round of direct negotiations breaking down in 2010.
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