Israel on Saturday rejected "shameful anti-Israel resolution at the UN" after US President Barack Obama on Friday refused to have it vetoed in the Security Council in a signature departure from US policy of blocking measures critical of Israel.

The Security Council condemned the Israel building of settlements on the West bank and East Jerusalem in a show of defiance by both the council members and the Obama administration against President-elect Donald Trump who wanted it vetoed.

Israeli Prime Minister Benjamin Netanyahu said his country will not abide by the UNSC's demands for Tel Aviv to halt its settlement activities in the occupied Palestinian lands.

"Israel rejects this shameful anti-Israel resolution at the UN and will not abide by its terms," a statement from the Prime Minister's office said.

The Obama administration "failed to protect Israel against this gang-up at the UN", and what is even worse, "colluded with it behind the scenes", it said.

In order to "negate the harmful effects of this absurd resolution", Israel is looking forward to working with Trump and "all our friends in Congress, Republicans and Democrats alike", said the statement.

The resolution, which called the constructions in the Palestinian territories captured from Jordan in the 1967 war a "flagrant violation" of international law, passed on Friday with all the 14 Council members except the US voting for it.

Rather than veto it, US Permanent Representative Samantha Power abstained, thus allowing it to pass.

The US defended its abstention from Israeli criticism by stating that one "cannot champion settlements and the two state solution" at the same time.

Samantha Power said the US did not veto the resolution as it "reflects the facts on the ground and is consistent with US policy".

The resolution also called for a halt to settlement building and asked Israelis and Palestinians to de-escalate the tense situation and launch credible negotiations.

The two days of dramatic developments with Trump trying to actively influence US foreign policy foreshadow the nation's posture at the UN when he becomes President and Indian American Nikki Haley takes over as the US ambassador, a cabinet-level position, and resistance it was likely to face.

He tweeted after the resolution passed, "As to the UN, things will be different after January 20," the day he is sworn-in.

The drama began with Trump tweeting a challenge to Obama on Thursday, "The resolution being considered at the UNSC regarding Israel should be vetoed."

Trump called Egyptian President Abdel Fattah al-Sisi and pressured him on the resolution originally proposed by Cairo that was to have been taken up on Thursday.

Egypt backed out and the council meeting on the resolution scheduled for Thursday was postponed.

The Egyptian President's Office later acknowledged that this was done because Trump and al-Sisi wanted to allow the new administration to deal comprehensively with the Palestinian situation.

In the next dramatic twist, New Zealand, Senegal, Venezuela and Malaysia brought the resolution abandoned by Egypt before the council.

Washington has used its veto powers dozens of times to squelch resolutions criticising Israel. 

Three resolutions on the same topic as Friday's resolution that related to Israeli construction activities were vetoed three times, most recently under Obama in 2011.

US Secretary of State John Kerry said Washington had allowed it to pass because it wanted to preserve the possibility of a two-state solution for the Israeli-Palestinian conflict.

Some right-wing Israeli political groups and ultra-orthodox Jews have been building settlements on the West Bank and in East Jerusalem in hopes of preventing the handover of those areas to a Palestinian nation proposed under various plans for a two-state solution, which is backed by India.