The European Union expressed deep concern on Wednesday about Israel's decision to speed up settlement activity in response to the Palestinian accession to the United Nations cultural agency UNESCO.

Israel decided on Tuesday to accelerate Jewish settlement building and withhold Palestinian Authority funds, moves likely to further hold up international efforts to revive peace talks.

"I am deeply concerned by the latest Israeli decisions," EU foreign policy chief Catherine Ashton said in a statement, adding that settlement building was against international law.

"We call on Israel to reverse this decision and call on both sides to continue their engagement with the Quartet on advancing peace efforts," Ashton said, referring to the group of Middle East peace brokers.

Israel's move came a day after UNESCO awarded the Palestinians full membership, a diplomatic victory for the Palestinian Authority in its push for recognition as a state at the United Nations.

Israel called the UNESCO decision a "tragedy" and the United States said it would stop its funding of the organisation.