Foreign minister Villy Søvndal summoned Israel’s ambassador for consultation yesterday to discuss Israel’s decision to build 3,000 new settlements east of Jerusalem in the occupied West Bank.

The settlements would be illegal under international law and are widely considered to be a retaliatory move following the decision by the UN to grant Palestine the status of non-member observer state. Israel is also withholding over 500 million kroner in tax revenue from the Palestinian Authority that Israel gathered on its behalf.

“Israel’s decision to build more illegal settlements and punish president Abbas and his Palestinian government is a very sad and dangerous reaction that makes it difficult to see the connection between Israel’s expressed goal for a two-state solution and a political will to enable it,” Søvndal told the Ritzau news bureau.

“The EU and Denmark have firmly stated that all Israeli settlement on Palestinian land is illegal according to international law and limits the opportunities for peace.”

Søvndal was not alone in condemning Israel’s decision, and Israeli ambassadors in France, the UK, Sweden and Spain were all summoned over the move to build the new settlements in the E1 area east of Jerusalem.

If Israel follows through with it pledge to build settlements there, the West Bank will be effectively cut off from Jerusalem, which is envisaged as the future shared capital of Israel and a Palestinian state under the two-state solution.

The US was only one of nine countries that voted against upgrading Palestine to non-observer status at the United Nations last week, a vote that secretary of state Hillary Clinton called “unfortunate and counter-productive”.

But while the US supported Israel in voting against upgrading Palestine, it condemned Israel’s new settlement plan.

“The United States opposes all unilateral actions, including West Bank settlement activity and housing construction in East Jerusalem, as they complicate efforts to resume direct, bilateral negotiations, and risk prejudging the outcome of those negotiations,” a state department spokesperson told the Guardian newspaper. “This includes building in the E1 area as this area is particularly sensitive and construction there would be especially damaging to efforts to achieve a two-state solution.”

The current Danish government has taken a strong line against Israeli settlements in the occupied West Bank and has supported moves to label goods produced by illegal settlements.

Israel has responded that the move would discriminate unfairly against Israel, as products from other areas where there are territorial disputes – such as Cyprus, Tibet, Kashmir – are not being targeted for labelling.

Despite the international pressure, Israel says it will not back down from the settlement plan. “We will continue to stand by our vital national interests against international pressure and there will be no change in the decision that was made,” a source in the Israeli prime minister’s office told the Guardian.