Britain, France, Germany and Portugal said in a joint statement after a council meeting on the Middle East conflict that they were "dismayed by these wholly negative developments" and the threat they pose to the peace process.
The four council members called for strong measures by the Israeli government to halt attacks on mosques and Palestinians by extremist settlers.
South Africa, India and Brazil launched their own condemnation, while Russia's UN envoy questioned whether a two-state solution to the Israel-Palestinian conflict was now possible.
The four European countries said Israel's announcements of accelerated settlement building send a "devastating" message, and urged the Jewish state to reverse the plans.
"The viability of the Palestinian state that we want to see and the two-state solution that is essential for Israel's long-term security are threatened by the systematic and deliberate expansion of settlements," added the statement read by Britain's UN Ambassador Mark Lyall Grant.
"We condemn the disturbing escalation of violence by settlers, including the burning of the Nebi Akasha mosque in west Jerusalem and the Burqa mosque in the West Bank. It is clear that these deliberately provocative attacks on places of worship were designed to aggravate tensions."
The Europeans welcomed Prime Minister Benjamin Netanyahu's vow to clamp down on extremists and called "on the Israeli government to fulfil its commitment to bring the perpetrators to justice and to put an end to impunity."
Netanyahu called the attacks on Arabs, mosques as well as Israeli soldiers and police "a stain on Israel's democracy."
The UN ambassadors appeared before reporters after a UN briefing on efforts to bring Israelis and Palestinians back to direct talks, deadlocked since September 2010.
The Palestinian leadership has refused talks while settlement construction goes ahead and, frustrated by the negotiation deadlock, has sought full UN membership in a bid to raise its international profile.
A host of UN members came out to criticise Israel after the briefing.
Speaking for Brazil, India and South Africa, Brazil's UN Ambassador Maria Luiza Ribeiro Viotti said the emerging powers were "deeply disturbed" by events and called the settlements "a major obstacle to peace."
Russia's UN envoy, Vitaly Churkin, said his government was gravely concerned by the new settlements, which the UN has reaffirmed breach international law. The ambassador said the construction was "clearly putting in question the possibility of the two-state solution."
Arab nations were "profoundly disappointed and frustrated by the inaction of the Security Council" on the settlements and moves to rebuild the peace process, Lebanon's UN Ambassador Nawaf Salam said.
Russia, the United States, European Union and United Nations make up the diplomatic Quartet on the Middle East, which has struggled to reignite the Israel-Palestinian talks.
The United States has vetoed a Security Council condemnation of the settlements this year and vowed to veto Palestinian membership of the UN. But diplomats say the US administration is increasingly frustrated with Israel's attitude on settlements and contacts with the Quartet.
