Nikki Haley, the American ambassador, said just before her veto that the US “has an undiminished commitment to helping bring about final status negotiations that will lead to lasting peace. Our hand remains extended to both parties."
She also said the US "will not be told by any country where we can put our embassy. What we have witnessed here is an insult. It won’t be forgotten. It is one more example of the UN doing more harm than good in addressing the Israeli Palestinian conflict."
This was the first time the US has vetoed a vote in the Security Council in nearly eight years.
The remaining 14 members voted in favour of the Egyptian-drafted resolution, which did not specifically mention the US or Mr Trump but expressed "deep regret at recent decisions concerning the status of Jerusalem."
The draft text also stated that "any decisions which purport to have altered the character, status or demographic composition of the Holy City of Jerusalem have no legal effect" and according to Security Council resolutions of the past "must be rescinded".
It also called upon all countries to refrain from establishing diplomatic missions in Jerusalem.
The UN's Middle East peace envoy Nickolay Mladenov said ahead of the vote that Mr Trump's reversal of 70 years of US foreign policy of abstaining from recognition despite its close relationship with Israel has caused the situation in the region to become "more tense with an increase in incidents, notably rockets fired from Gaza and clashes between Palestinians and Israeli security forces."
Mr Mladenov also said that "no such steps" had been taken by Israel to stop settlement building, a key component to any viable peace deal between the parties.
Israel considers Jerusalem its eternal and indivisible capital and wants all embassies based there. Palestinians want the capital of an independent state to be in the city's eastern sector, which Israel captured in a 1967 war and annexed in a move never recognised internationally.
During his announcement, Mr Trump said the decision was “long overdue” and "nothing more or less than recognition of reality.”
Secretary of State Rex Tillerson and Defence Secretary James Mattis were among senior officials who advised Mr Trump against breaking decades of US foreign policy, but he was reportedly swayed otherwise by son-in-law and White House adviser Jared Kushner and Vice President Mike Pence.
Opponents of the decision feared it would be the beginning of chaos and violence in the region as a Hamas spokesman said it "opens the gates of hell".
The “decision on Jerusalem will not succeed in changing the fact that Jerusalem is an Arab Muslim land," said the spokesman of the militant group that controls Gaza.
Hamas called the decision about the city "a red line".
The statement was unequivocal: "the resistance will not allow any desecration of it." The group had also repeatedly called for a Palestinian "day of rage," which took place on 8 December.
Mr Trump had also faced backlash from several world leaders over his announcement earlier this month.
UK Ambassador to the UN Matthew Rycroft expressed disagreement with the veto and the administration's decision. He tweeted that the UK calls on the Trump administration “to put forward concrete proposals that will take [forward] the Middle East Peace Process.”
He told reporters the resolution today was in line with previous ones the Security Council had put forward, resolutions on which the previous Obama administration had simply abstained from voting.
Part of Mr Trump's announcement was that the US would move its embassy from Tel Aviv to Jerusalem as well, but the move would likely require at least three to four more years of planning, construction, and budgeting.
Mr Trump clarified in his announcement that the move is "not intended in any way to reflect a departure from" a mutually acceptable peace deal and a two-state solution, should "both sides" agree to it.
The "US remains deeply committed to helping facilitate a peace agreement," Mr Trump noted.
However, allies have reported they are still in the dark about the manoeuvring and strategy of Mr Kushner - the President's choice to lead the negotiations who is also a family friend of Israeli Prime Minister Benjamin Netanyahu.
Agencies contributed to this report.
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