Ashton, delivering a speech to Arab League officials in Cairo, also said the settlements were illegal.
Israel's plan to build 1,600 new homes for Jews in East Jerusalem, which Israel captured in a 1967 war and later annexed, have dismayed the Palestinian leadership and strained ties with its main backer the United States.
Prime Minister Benjamin Netanyahu on Monday rejected any curbs on Jewish settlement in and around Jerusalem.
"The EU position on settlements is clear. Settlements are illegal," Ashton said in her speech. "Recent Israeli decisions to build new housing units in East Jerusalem have endangered and undermined the tentative agreement to begin proximity talks."
The EU is a member of the Quartet, along with the United States, the United Nations and Russia, which is pushing the peace process and has condemned the settlement plan.
Ashton will meet Quartet representatives in Moscow on Friday.
"I hope on Friday what you will see is a reinvigorated Quartet able to work together to try to support the process forward," Ashton told a news conference following her speech.
Ashton earlier met Egyptian Foreign Minister Aboul Gheit, who said the negotiations must resume despite the settlement expansion.
The Palestinians, who had just agreed to begin indirect peace talks under US mediation, said they would not go ahead unless the plan was scrapped.
(EurActiv with Reuters.)
