UN Secretary-General Ban Ki-moon criticized Israel on Friday over reports that it plans to build 2,600 more housing units in East Jerusalem, saying further settlement activity was "unacceptable."

"The Secretary-General is deeply concerned at continued efforts to advance planning for new Israeli settlements in occupied East Jerusalem," Ban's press office said in a statement.

"Recent developments in this regard have been unacceptable, particularly as efforts are ongoing to resume (Israeli-Palestinian) negotiations, and run contrary to the Quartet's call on the parties to refrain from provocations," it said.

The Peace Now group said on Friday that Israel planned to build the housing units in a new urban settlement that will effectively cut off East Jerusalem from the West Bank, throwing further doubt on a diplomatic push for negotiations. Palestinian officials say they cannot return to peace talks while Israel builds on lands required for a viable Palestinian state.

EU foreign policy chief Catherine Ashton also condemned the proposed settlement expansion in a statement released Saturday.

"I deplore the decision by the Israeli Authorities to advance the plan for the construction of 2600 new housing units in the settlement of Givat Hamatos and to legalize – under Israeli Law – houses in West Bank outposts.

"This is unacceptable. Both actions run against roadmap obligations. Settlements are illegal under international law. These decisions should be reversed."

The EU chief called on Israel to dismantle all outposts erected since March 2001, adding that the proposed settlement plans undermine efforts to resume negotiations.

The "Quartet" of Middle East peace negotiators -- the United States, Russia, the European Union and United Nations -- has urged Israel and the Palestinians to avoid provocative actions and urged them to resume stalled peace negotiations.

Peace Now said the settlement plan was approved earlier this week by an Israeli municipal committee, which had given the go-ahead for construction on the site that lies on land seized by Israel in the 1967 Middle East war. There was no immediate comment from the municipal committee on the report.

"The Secretary-General reiterates that settlement activity in East Jerusalem and the remainder of the West Bank is contrary to international law," the UN statement said, adding such activity "must cease."

The reports about a new settlement plan come as the PLO is working to secure UN recognition of a sovereign Palestinian state in the West Bank and Gaza Strip, with East Jerusalem as its capital, along with full membership in the United Nations.

The UN bid has infuriated Israel, which says it is an attempt to delegitimize it. Israel's ally the United States has said it was prepared to veto the Palestinian UN application, which is currently being assessed by a UN Security Council committee.

If the Palestinian application to join the United Nations comes to a vote in the full Security Council, the United States has the power to veto it due to its status as a permanent member of the 15-nation panel.

The Security Council committee is expected to report back to the full council next week about progress it has made assessing the Palestinian UN application.

Diplomats on the committee, which includes all council members, say privately that little progress has been made in assessing the Palestinian request to join the world body.