Ireland is among 21 countries to sign a joint statement calling Israel's approval of a major settlement project in the West Bank "unacceptable and a violation of international law".
"We condemn this decision and call for its immediate reversal in the strongest terms," the statement said of plans for the so-called E1 area near Jerusalem.
They called on Israel to "urgently retract this plan".
"Unilateral action by the Israeli government undermines our collective desire for security and prosperity in the Middle East. The Israeli government must stop settlement construction in line with UNSC Resolution 2334 and remove their restrictions on the finances of the Palestinian Authority," the statement said.
Other signatories included the UK, France, Australia, Canada and Italy.
Last week, the UN human rights office described Israel's decision to build the new settlement near East Jerusalem as a "war crime".
It said the plan to build thousands of new homes between an Israeli settlement in the West Bank and near East Jerusalem was illegal under international law, and would put nearby Palestinians at risk of forced eviction, which it described as a war crime.
Israeli far-right Finance Minister Bezalel Smotrich vowed to press on a long-delayed settlement project, saying the move would "bury" the idea of a Palestinian state.
In their statement today, the countries said: "Minister Smotrich says this plan will make a two-state solution impossible by dividing any Palestinian state and restricting Palestinian access to Jerusalem. This brings no benefits to the Israeli people.
"Instead, it risks undermining security and fuels further violence and instability, taking us further away from peace."
About 700,000 Israeli settlers live among 2.7 million Palestinians in the West Bank and East Jerusalem.
Israel annexed East Jerusalem in 1980, a move not recognised by most countries, but it has not formally extended sovereignty over the West Bank.
The International Court of Justice said that Israel's settlement policies and exploitation of natural resources in the Palestinian territories were in breach of international law.
Most world powers say settlement expansion erodes the viability of a two-state solution by breaking up territory the Palestinians seek as part of a future independent state.
The two-state plan envisages a Palestinian state in East Jerusalem, the West Bank and Gaza, existing side by side with Israel, which captured all three territories in the 1967 Middle East war.
Israel cites historical and biblical ties to the area and says the settlements provide strategic depth and security and that the West Bank is "disputed" not "occupied".
Accreditation AFP
