UNITED NATIONS (Reuters) - Israeli settlements on occupied land wanted by the Palestinians may have already killed a possible two-state solution, said the United Nations Middle East envoy on Thursday as he suggested the U.N. Security Council should take action on the peace process.

Palestinians seek a state in Gaza, the West Bank and East Jerusalem, lands Israel captured in 1967. Most countries view Israel's settlement building on occupied land as illegal.

Israeli Prime Minister Benjamin Netanyahu said last week ahead of his re-election he would not permit a Palestinian state to be created under his watch and promised to go on building settlements.

"Illegal settlement activity simply cannot be reconciled with the objective of a negotiated two-state solution and may kill the very possibility of reaching peace on the paradigm of two states for two peoples," outgoing U.N. Middle East envoy Robert Serry told the U.N. Security Council.

"I frankly do not know if it is already too late," he said.

Serry also said that if the Palestinians follow through on a pledge to halt security coordination with Israel then it could be the "final nail in the coffin" of the Oslo peace accords of the mid-1990s.

He said if the Israelis and the Palestinians are not ready to resume negotiations but show they both still believe in a two-state solution then the international community should consider presenting the parameters for the peace process.

"This may be the only way to preserve the goal of a two-state solution, in the present circumstances," he said.

France said on Tuesday it would still push for a U.N. Security Council resolution that would lay out the parameters for ending the Middle East conflict but that it was "a bit early to say" when would be the best time for such a move.

"We consider that it is important to recreate, to consolidate the momentum and the objective of a two-state solution," French U.N. Ambassador Francois Delattre told reporters. "We consider the Security Council is the best venue."

Delattre, president of the council for March, said on Thursday a majority of council members supported a stronger role for the body in the Israel/Palestinian peace process.

Council veto power the United States has traditionally shielded its ally Israel at the United Nations. But the United States has said it would "reassess" its options on U.S.-Israel relations and Middle East diplomacy after Netanyahu took a stand against Palestinian statehood during his election campaign.

In December, the United States voted against a Palestinian resolution calling for an Israeli withdrawal from the occupied West Bank and East Jerusalem and the establishment of a Palestinian state by late 2017.

Serry, a Dutch national, will be replaced by Nickolay Mladenov, of Bulgaria, who was most recently the U.N. special envoy to Iraq.

"Upon leaving ... I cannot but express an overriding feeling that I have been part of a peace process in which a can is kicked down an endless road," said Serry, who described himself as "disheartened" after seven years in the role.

(Reporting by Michelle Nichols; Editing by James Dalgleish)