The resolution, passed on Tuesday at the UN's Paris headquarters by 22 votes to 10 with 23 abstentions, denounced actions taken by "Israel, the occupying power… to alter the character and status of the holy city of Jerusalem", including "persistent excavations, tunneling, works and projects".
Most European countries abstained, while Greece, the UK, Italy and Lithuania voted against. Sweden was the only European nation to vote in favour of the resolution, which criticised in particular Israel's annexation of East Jerusalem after occupying it in 1967, a move never recognized by the international community.
Israeli PM Benjamin Netanyahu announced that Israel would cut $1 million from its United Nations funding in response, saying the resolution denies Jews' historical connection with Jerusalem.
"UNESCO again accepted an absurd resolution yesterday about the status of Jerusalem – the capital of the Jewish people for 3,000 years," Netanyahu said at the opening of a cabinet meeting.
"This systematic harassment has a price," he added, telling ministers he had order the foreign ministry to "cut an additional $1 million from the money Israel transfers to the UN."
Wednesday's cut was the third time in recent months Israel reduced its UN budget over what it perceived as anti-Israel votes, putting the 2017 payments at $3.7 million instead of the original $11 million, an Israeli official said.
Senior Israeli foreign ministry officials expressed their "bitter disappointment" over the vote in their talk with Swedish ambassador Nesser, noting Sweden's "systematic voting" pattern against Israel, a statement read.
The Swedish government released a statement explaining its voting on the resolution on Tuesday, saying that it had "consistently strived for EU unity on this resolution" but "since the EU unfortunately has not been able to stay united, and since Sweden believes the current text is acceptable, Sweden has voted in favor".
"Sweden stands by the (UNESCO) Executive Board's decision regarding a permanent UNESCO representative and a UNESCO reactive monitoring mission to the world heritage site Old City of Jerusalem and its walls. Sweden encourages Israel to enable this mission to carry out its tasks as mutually agreed by the parties in 2013 and we hope for its implementation," it added.
Relations between Sweden and Israel have been frosty for some time now after the former recognized Palestine as a state in 2014. Israeli officials have regularly refused to meet Swedish Foreign Minister Margot Wallström, in particular after she called for investigations into "extrajudicial" killings of Palestinian assailants by Israeli forces.
Sweden's decision to appoint a special envoy to the Israel-Palestine peace process earlier this year didn't appear to help either, with the Israeli Foreign Ministry asking ironically in response why the Swedes "couldn't come sooner?".