CANBERRA (Reuters) -- Australia summoned the Israeli ambassador on Tuesday to protest against Israel's decision to expand Jewish settlements in East Jerusalem and the West Bank and withhold tax revenue from the Palestinian Authority.

Australia's move followed similar actions in Europe including Spain, France, Britain, Sweden and Denmark in the wake of the Palestinians winning de facto UN recognition of statehood.

"Australia has long opposed all settlement activity," Foreign Minister Bob Carr said in a statement after Israeli Ambassador Yuval Rotem's meeting with senior Australian officials. "Such activity threatens the viability of a two-state solution without which there will never be security in Israel."

Carr, whose country takes up a rotating UN Security Council seat next year, said Israel's actions had complicated the chances of fresh negotiations between the two sides.

"I am extremely disappointed with these reported Israeli decisions," he said.

The UN victory for the Palestinians was a diplomatic setback for the United States and Israel, which were joined by only a handful of countries in voting against the move to upgrade the Palestinian Authority's observer status at the United Nations to "non-member state" from "entity," like the Vatican.

There were 138 votes in favor, nine against and 41 abstentions, including Australia.