Israeli Prime Minister Benjamin Netanyahu told New Zealand's foreign minister that his country's sponsoring of the UN anti-settlement resolution was a "declaration of war".
Mr Netanyahu has also lashed out at President Barack Obama after Friday's Security Council vote, on which the United States' abstention marked a break with tradition, and called the action a "shameful ambush".
The Security Council voted to condemn settlement building in the West Bank and East Jerusalem as a "flagrant violation of international law" and demanded Israel “immediately and completely cease all settlement activities in the occupied Palestinian territory”, pointing out that the international community views any Israeli construction over the agreed 1967 Green Line as illegal.
According to Haaretz, in a personal phone call Mr Netanyahu told New Zealand foreign minister Murray McCully: "This is a scandalous decision. I'm asking that you not support it and not promote it.
"If you continue to promote this resolution from our point of view it will be a declaration of war. It will rupture the relations and there will be consequences."
Mr McCully reportedly refused to back down and said the resolution was consistent with New Zealand policy.
Israel has recalled its ambassadors to New Zealand and Senegal, and cancelled aid to the latter country.
The resolution was put forward by New Zealand, Senegal, Malaysia and Venezuela, taking place just a day after Egypt withdrew it following significant pressure from both Israel and President-elect Donald Trump.
Mr Netanyahu has said Israel will not abide by the ruling.
He added: "At a time when the Security Council does nothing to stop the slaughter of half a million people in Syria, it disgracefully gangs up on the one true democracy in the Middle East, Israel, and calls the Western Wall ‘occupied territory’."
Defending New Zealand’s vote on Saturday, Mr McCully said: "We have been very open about our view that the [UN Security Council] should be doing more to support the Middle East peace process and the position we adopted today is totally in line with our long established policy on the Palestinian question.
"The vote… should not come as a surprise to anyone and we look forward to continuing to engage constructively with all parties on this issue."
The vote was welcomed by Palestinian representatives. A spokesperson from Palestinan Authority President Mahmoud Abbas' office called it a "big blow to Israeli policy, a unanimous international condemnation of settlements, and a strong support for the two-state solution".
The building of illegal settlements – which has accelerated year-on-year under current right-wing Prime Minister Netanyahu – is viewed as one of the major stumbling blocks to a lasting peace deal.
The Jerusalem Local Planning and Construction Committee is expected to approve permits to build 618 new homes in Jewish neighbourhoods across the Green Line today - and at the same time US Secretary of State John Kerry is due to lay out his vision for ending the Israeli-Palestinian conflict.
The speech, less than a month before President Barack Obama leaves office, is likely to be the administration's last word on a decades-old dispute that Mr Kerry had hoped to resolve during his four years as America's top diplomat.
It could also be seen in Israel as another parting shot at Israeli Prime Minister Benjamin Netanyahu, who has had an especially acrimonious relationship with Mr Obama since they both took office in 2009.
A State Department official said: "We believe that with the two-state solution in peril, it is important to share the deeper understanding we have developed of both sides' bottom lines during intensive consultations in recent years."
The Israeli embassy in London has been contacted for comment.