William Hague has called on Israel to reverse its plans to build new housing settlements in the West Bank, warning it would make a two-state solution "difficult to achieve".
The Foreign Secretary said he was "extremely concerned" at the plans to create 3,000 new homes, which were announced a day after the United Nations recognised Palestine as a non-member observer state.
He warned the move undermined Israel's international reputation and created doubts about its commitment to achieving peace.
Mr Hague abstained at the UN General Assembly vote over Palestine's status on Thursday after President Mahmoud Abbas failed to give assurances that he would return to peace negotiations without preconditions.
But he also repeatedly made clear in calls with Israeli foreign minister Avigdor Lieberman that the UK would not support a strong reaction to the vote.
Speaking today, the Foreign Secretary said: "I am extremely concerned by reports that the Israeli cabinet plans to approve the building of 3,000 new housing units in illegal settlements in the West Bank and East Jerusalem.
"Israeli settlements are illegal under international law and undermine trust between the parties. If implemented, these plans would alter the situation on the ground on a scale that makes the two-state solution, with Jerusalem as a shared capital, increasingly difficult to achieve.
"They would undermine Israel's international reputation and create doubts about its stated commitment to achieving peace with the Palestinians.
"The UK strongly advises the Israeli government to reverse this decision. The window for a two-state solution is closing, and we need urgent efforts by the parties and by the international community to achieve a return to negotiations, not actions which will make that harder."
The Palestinians have refused to negotiate while Israeli settlement construction continues.