BRUSSELS, Dec 10 (Reuters) - The European Union expressed dismay on Monday over Israel's plans to build settlements in a highly sensitive part of the West Bank, but spelled out no punitive measures in response.

After meeting in Brussels, foreign ministers of the 27 EU states said the Israeli plan would seriously undermine the prospects of successful peace negotiations between Israel and the Palestinians.

"The EU is deeply dismayed by and strongly opposes Israeli plans to expand settlements," they said in a statement. "The EU will closely monitor the situation and its broader implications, and act accordingly."

The statement made no mention of what European governments could do to pressure Israel over the settlements, and diplomats said no concrete plans for sanctions were brought up during the discussions.

Deep divisions over how to tackle the Palestinian-Israeli conflict mean sanctions or other concrete steps by EU states appear unlikely for now.

The EU ministers also criticised recent statements by a leader from the Islamist movement Hamas questioning Israel's right to exist.

On Saturday, Hamas leader Khaled Meshaal told a mass rally in Gaza that he would never recognise Israel and pledged to "free the land of Palestine inch by inch".

"The EU finds inflammatory statements by Hamas leaders that deny Israel's right to exist unacceptable," the ministers said.

Israel announced its new settlement plan shortly after the U.N. General Assembly upgraded the Palestinians' status in the world body from "observer entity" to "non-member state".

Palestinians said the settlements could cut them off from Jerusalem, their would-be capital.