In a move likely to further inflame tensions, Israel's hawkish defense minister Avigdor Lieberman said on Friday that the approval of 42 new housing units in the settlement of Kiryat Arba would send a message to Palestinians - that every attack would only strengthen Israel's resolve.
The decision follows calls among Israelis for a harsh response to a series of Palestinian attacks against Israelis in recent days.
Hanan Ashrawi, the PLO executive committee member, said in an emailed press statement that it is "occupation" under worldwide cover.
"The secretary-general strongly criticizes the decision by Israeli authorities to advance plans to build some 560 housing units in the West Bank settlement of Maale Adumim, as well as the advancement of plans to build 240 housing units in a number of settlements in occupied East Jerusalem", said a statement issued by Ban's spokesman.
According to the report, the decision to cut relations with the Quartet was made by Palestinian Authority President Mahmoud Abbas who alleges that the global committee is siding with Israel.
Ban said that "settlements are illegal under worldwide law" and called on the Israeli government to "halt and reverse such decisions in the interest of peace and a just final status agreement".
On Thursday, 13-year-old Israeli-American Hallel Yaffa Ariel was fatally stabbed in the settlement of Kiryat Arba on the outskirts of the flashpoint West Bank city of Hebron. She was thirteen - her attacker, also a teenager, was only a few years older.
The long-awaited report said Israel should stop building settlements, denying Palestinian development and designating land for exclusive Israeli use that Palestinians seek for a future state.
On Friday, hours after Tarayra, Mark and Habash were killed, Israel announced a lockdown in Hebron as it searched for the gunmen involved in Mark's killing.
In its report, the Quartet also questioned Israel's commitment to the two-state solution following its policy of increasing settlement construction.
To promote the peace process in the Middle East, the diplomatic group is seeking a two-state solution - a secure State of Israel to live in peace with an independent State of Palestine.
Members of the Israeli security forces fire a tear gas canister from the top of Isreal's controversial separation barrier during clashes with Palestinians demonstrators in the village of Bilin, near the West Bank city of Ramallah following a march in support of the resistance in the Gaza Strip.
Hebron has always been a flashpoint in the conflict, with hundreds of Jewish settlers living under heavy military guard in the heart of the city among some 200,000 Palestinians.
At least 214 Palestinians, 34 Israelis, two Americans, an Eritrean and a Sudanese have been killed since October.
IS influence in the West Bank has been limited.
Peace talks collapsed in April 2014 and Israeli-Palestinian violence has surged in recent months.