Britain summoned Israel's ambassador for talks about the Jewish state's new settlement plans on Monday, saying it "deplores" the proposals and threatening a "strong reaction".
Foreign Office minister Alistair Burt called in Daniel Taub to express Britain's concerns about the impact all settlement buildings, particularly those in east Jerusalem, could have on peace talks with the Palestinians.
"We deplore the recent Israeli government decision to build 3000 new housing units and unfreeze development in the E1 block (a controversial corridor of West Bank land east of Jerusalem). This threatens the viability of the two-state solution," the Foreign Office said in a statement.
"We have called on the Israeli government to reverse this decision."
In an earlier statement, the ministry said: "We have told the Israeli government that if they go ahead with their decision, then there will be a strong reaction."
Israel's announcement about the 3000 Jewish settler homes in occupied Palestinian territories came in response to a historic vote by the United Nations General Assembly to upgrade the Palestinians' diplomatic status.
France also summoned the Israeli ambassador on Monday.
But a spokesman for Prime Minister David Cameron dismissed speculation that Britain was also considering recalling its ambassador to Israel in protest at the settlements move.
"We are not proposing to do that," the spokesperson said.
The Foreign Office said in a statement that Burt had "set out the depth of the UK's concerns" in his meeting with Taub.
"Any decision about any other measures the UK might take will depend on the outcome of our discussions with the Israeli government and with international partners including the US and European Union," it added.