Minister for Foreign Affairs Eamon Gilmore has called on the Israeli government to withdraw its plans to expand Jewish settlements in the West Bank.
Mr Gilmore said the scale of the plans suggested that Israel had no real intention of desisting from expanding and building new settlements.
He said: "Last week's decision by the UN General Assembly to grant Observer State status to Palestine should have provided much needed impetus for the resumption of substantive peace negotiations.
"It should not be used as grounds for creating further serious obstacles in the path of peace."
Mr Gilmore also called on both sides to stop any activity that "makes the resumption of peace talks more difficult".
The Tánaiste’s comments come after Britain, France and Sweden summoned their respective Israeli ambassadors to express concern over the Israeli decision.
Israel says it has a historical claim to land in the West Bank and to all of Jerusalem.
It captured the West Bank and East Jerusalem in a 1967 war.
Palestinians want East Jerusalem as the capital of a future state.
Israeli Prime Minister Benjamin Netanyahu has already dismissed world condemnation of his latest settlement plans.
The United States reiterated its opposition to the new settlement activity, which it said could be especially damaging to efforts to achieve a two-state solution to the Israeli-Palestinian conflict.
"The United States opposes all unilateral actions, including West Bank settlement activity and housing construction in East Jerusalem, as they complicate efforts to resume direct, bilateral negotiations," State Department spokeman Mark Toner said in a statement.
"This includes building in the E-1 area as this area is particularly sensitive and construction there would be especially damaging to efforts to achieve a two-state solution."
The Israeli envoy to Paris was called to a meeting this morning, according to French foreign ministry spokesman Philippe Lalliot.
France was the first major European country to announce support for the Palestinian effort to win recognition at the UN.
It also sent a letter to the Israeli government, calling the settlement decision "a considerable obstacle to the two-state solution".
Germany said the decision would hurt Israel's ability to negotiate a long-term peace agreement.
None of the European governments have openly threatened any concrete measures to punish Israel.