EU foreign policy chief and European Commission Vice President Catherine Ashton condemned Sunday's demolition of the Shepherd Hotel in east Jerusalem.
In a statement she said: "I strongly condemn this morning's demolition of the Shepherd Hotel and the planned construction of a new illegal settlement. I reiterate that settlements are illegal under international law, undermine trust between the parties and constitute an obstacle to peace."
"Furthermore, we recall that East Jerusalem is part of occupied Palestinian territory. The EU does not recognise the annexation by Israel," the statement added.
"We are also concerned by the recent upsurge of violence in the Occupied Palestinian territory, and deeply regret the loss of life. We call on all parties to exercise restraint, and for a halt to all violence."
Built in the 1930s as the residence of the mufti of Jerusalem at the time, Haj Amin Husseini, who became infamous
for his ties to Nazi leader Adolf Hitler, the vacant hotel was demolished by Israeli bulldozers, clearing the way for a new housing development.
The property fell under the control of Israel in 1967. Nearly two decades later, the Israeli government sold the building to US businessman Irving Moskowitz.