Ban Ki-moon's office said on Wednesday that he was "concerned about the decision by the Jerusalem municipality to advance planning for house demolitions and further settlement activity in the area of Silwan".
"The planned moves are contrary to international law, and to the wishes of Palestinian residents," the statement said.
Israeli municipal authorities moved ahead on Monday with plans to demolish 20 Palestinian homes in East Jerusalem, risking more US-Israeli friction and international criticism following its recent deadly raid on a flotilla trying to take humanitarian goods into Gaza.
Ban reminded Israel "of its responsibility to ensure provocative steps are not taken which would heighten tensions in the city".
"The current moves are unhelpful, coming at a time when the goal must be to build trust to support political negotiations."
Ban's statement appeared to confirm that the Jerusalem city planning board's decision will lead to renewed international pressure on Binyamin Netanyahu, the Israeli prime minister.
Earlier this week, Netanyahu bowed to calls to ease a Gaza blockade in the wake of the raid on the aid flotilla that killed nine people.
The UN chief's comments came on the same day that the head of the world body's Palestinian refugee agency said that the fine print of Israel's pledge to ease its Gaza blockade raised questions about how effective it would prove to be.
Israel's rules previously banned any import into Gaza that was not explicitly permitted. It now says it will let in all goods except those on a list that could be used for military purposes, including cement and steel rods.
'Absurd and illegal'
Filippo Grandi, commissioner general of the refugee agency known as UNRWA, called the blockade "absurd, counterproductive and illegal" and cited elements in Israel's plan to ease the siege that left unclear how it would be fully implemented.
"They're talking about items that will be allowed for certain times and not other times, depending on who the consignee is. So it's still very complicated," he told reporters in Beirut.
"We have seen some broad statements of how they will do it but the devil is in the detail. We have to see how this will be done and we haven't seen it yet.
"We've seen many times declarations and statements," Grandi added. "But now we want to see facts ... Believe me, it's very urgent, because the conditions are very bad on the ground."
Human rights groups and other critics see the blockade as collective punishment of Gaza's 1.5 million Palestinians.
Palestinians, UNRWA officials and rights advocates say there is a humanitarian crisis in Gaza, but Israel denies this.
Israel imposed the blockade in 2007 to try to weaken the Hamas faction which seized control of Gaza from Fatah forces loyal to Mahmoud Abbas, the Palestinian president.
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