A new Israeli law legalising dozens of unlawful West Bank settler outposts crossed a "very thick red line", the United Nations' Middle East envoy has said.
Israeli rights groups have said they will fight to overturn the measure in the Supreme Court.
The explosive law, approved by Israeli politicians late on Monday night, was the latest in a series of pro-settler steps taken by Israel's hard-line government since the election of Donald Trump as US president.
It is expected to trigger a number of challenges in the Supreme Court, while members of the international community have already begun to condemn it.
The law legalised dozens of outpost homes built unlawfully on private Palestinian land in the occupied West Bank.
According to the law, Palestinian landowners would be compensated either with money or alternative land, even if they did not agree to give up their property.
Critics say the legislation enshrines into law the theft of Palestinian land.
It also marked the first time that the Israeli parliament has imposed Israeli law on Palestinian inhabitants of the West Bank.
The area, captured by Israel in 1967, is not sovereign Israeli territory and Palestinians there are not Israeli citizens and do not have the right to vote.
Nickolay Mladenov, the UN's co-ordinator for the Middle East peace process, said the legislation "opens the floodgates to the potential annexation of the West Bank".
If Israel moves to solidify its control over the area, it would imperil the internationally backed idea of establishing a Palestinian state alongside Israel as part of a negotiated peace deal, he said.
"It will have a drastic legal consequence for Israel and for the nature of its democracy," Mr Mladenov said.
"It crosses a very, very thick red line."
Britain's minister for the Middle East, Tobias Ellwood, condemned the law, saying it "damages Israel's standing with its international partners".
He spoke a day after Israel's prime minister, Benjamin Netanyahu, met with British Prime Minister Theresa May in London.
The law also cast a cloud over a visit to Israel by Turkey's tourism minister.
Israel and Turkey recently repaired ties after a six-year rift, and the tourism minister, Nabi Avci, was visiting as part of that reconciliation.
Asked about the law, Mr Avci said he hoped Israel's Supreme Court would strike it down.
"I think, I hope, that on this issue, the high court will make the right decision, a decision in accordance with international law, a decision in accordance with United Nations decisions," he said.
Mr Netanyahu's nationalist coalition is dominated by West Bank settlers and their allies.
After repeated clashes with then US president Barack Obama, they have grown emboldened by the election of Mr Trump, who has signalled that he will take a much softer approach towards the settlements than his predecessors or the rest of the international community.
The law was "a first step in a series of measures that we must take in order to make our presence in Judea and Samaria present for years, for decades, for ages", said Israeli cabinet minister Yariv Levin, using the biblical name for the West Bank.
"I do believe that our right over our fatherland is something that cannot be denied."
Since Mr Trump took office last month, Israel has announced plans to build more than 6,000 settler homes in the West Bank and east Jerusalem - occupied territories claimed by the Palestinians.
After ignoring a string of Israeli announcements, the Trump White House last week finally said that settlements "may not be helpful" for peace.
But after the law was passed late on Monday, it said only that it would wait for Israel's courts to rule on the legislation before taking a stance.
Prominent Israeli human rights groups plan to ask the Supreme Court to strike it down.
A number of prominent legal experts have said the law will not survive a judicial review, and even Mr Netanyahu's own attorney general has refused to defend it in court.
"There's going to be a legal battle against this bill," said Lior Amihai, spokesman for Peace Now, an anti-settlement watchdog group.
He said his group was already preparing its legal challenge, but that it could take about two weeks to file the case.
Mr Netanyahu also expressed misgivings about the law, reportedly saying that it could invite international legal actions against Israel.
But under heavy pressure from the Jewish Home party, a coalition partner linked to the settler movement, he reversed course and allowed the bill to pass.
Mr Netanyahu was flying home from London late on Monday and missed the vote.
Naftali Bennett, head of the Jewish Home party, told Israel's Army Radio on Tuesday that the goal of the bill was to create the same conditions in the settlements as in Israel proper.
"At the end of the day, behind all the talk there is a simple question: what do we want for the future of Israel?" he said.
The Palestinians, meanwhile, have also condemned the vote and urged the international community to punish Israel.
"Nobody can legalise the theft of the Palestinian lands. Building settlements is a crime, building settlements is against all international laws," said Palestinian tourism and antiquities minister Rula Maayaa.
"I think it is time now for the international community to act concretely to stop the Israelis from these crimes."
The vote passed 60-52 in Israel's 120-member Knesset.
The raucous debate saw opposition politicians shouting from their seats at governing coalition politicians speaking in favour of the vote.
Some spectators in visitors' seats raised a black cloth in apparent protest.