The resolution was passed on Friday after the US refused to veto it.
The move represents a break from the traditional US stance to defend Israel from disparaging international resolutions.
Israeli Prime Minister Benjamin Netanyahu has rejected the vote describing it as
"shameful”, while a spokesman for Palestinian President called it a "big blow to Israeli policy".
The settlement issue is one of the biggest thorns in the side of the Israel-Palestinians conflict.
Settlements "flagrant violation"
About half a million Jews live across some 140 settlements in East Jerusalem and the West Bank, built since the Six day war in 1967.
The settlements are considered illegal under international law, but not by Israel.
The UN vote calls for Israel to immediately halt all settlement activities in the occupied Palestinian territory, including East Jerusalem.
Jewish settlements it states are a "flagrant violation under international law and a major obstacle to the achievement of the two-State solution and a just, lasting and comprehensive peace".
Egypt initially proposed the draft resolution but it was withdrawn when Israel asked US President-elect Donald Trump to intervene.
But the 15-member UN Security Council went on to pass it by 14 votes to zero after it was put forth again by New Zealand, Senegal, Venezuela and Malaysia.
The militant Palestinian Islamist group Hamas has welcomed the UN vote, saying it marked an "important evolution."