The Obama administration also harshly criticized Israel, its top Mideast ally, over the planned construction.
"We reiterate our longstanding opposition to Israeli settlement activity and East Jerusalem construction," White House press secretary Jay Carney told reporters. "We oppose all unilateral actions, including settlement activity and housing construction, as they complicate efforts to resume direct, bilateral negotiations and risk prejudging the outcome of those negotiations."
At the State Department, spokesman Mark Toner said the E1 plans are "especially damaging" to prospects for a resumption in Israeli-Palestinian peace talks.
The E1 area "area is particularly sensitive and construction there would be especially damaging to efforts to achieve a two-state solution," Toner said in a statement.
The fate of Jewish settlements is at the heart of the current four-year impasse in Mideast peacemaking. The Palestinians say continued settlement construction is a sign of bad faith, and they refuse to return to the negotiating table unless Israel stops the building. More than 500,000 Israelis now live in the West Bank and east Jerusalem.
Israeli officials say the Palestinians have negotiated with previous governments while settlement construction took place. They also note that even when Netanyahu imposed a 10-month partial freeze on construction in 2009 and 2010, there were no serious peace talks. Netanyahu says negotiations should begin immediately without any preconditions.
But last week's U.N. vote appears to have marked a turning point. While the U.S. and Europe have long opposed the settlements, their new condemnations used especially sharp language, and rarely are Israeli ambassadors publicly grilled.
Swedish Foreign Minister Carl Bildt told parliament that "together with other EU countries we will discuss other potential steps," though he would not elaborate.
British government officials said the EU would be looking to President Barack Obama for leadership on the matter, and that British diplomats were in touch with American counterparts in London.