The entire Jerusalem al-Quds is currently under Israel’s control, while the regime also claims the city’s eastern part, which hosts the third holiest Muslim site.
The city has been designated as “occupied” under international law since the 1967 Arab War, which Palestinians want as the capital of their future state.
Trump had vowed during his presidential campaign that he would relocate the US embassy in order to court pro-Israel voters.
Palestinians have repeatedly warned Trump against such an action, saying it would deliver a death blow to any prospects of the resolution of the Palestinian-Israeli conflict and fuel extremism in the region.
A Palestinian envoy said the Trump decision was a declaration of war in the Middle East.
China and Russia also expressed concern the plans could aggravate Middle East hostilities.
Pope Francis joined a list of leaders warning of an historic misstep, saying new tension would further inflame world conflicts.
Israeli Prime Minister Benjamin Netanyahu hailed Trump's recognition as "historic" and a "courageous and just decision."