Introducing the resolution, Egypt's Permanent Representative Amr Abdellatif Aboulatta said that the United States decision violated Council resolutions on the status of territories occupied by Israel and also the UN Charter which prohibits annexation of territories.
The United States was further isolated on Monday over President Donald Trump's decision to recognise Jerusalem as Israel's capital when it blocked a United Nations Security Council call for the declaration to be withdrawn.
"Any decision and actions which purport to have altered the character, status, or demographic composition of the Holy City of Jerusalem have no legal effect, are null and void and must be rescinded", the draft states.
"The United States will not be told by any country where we can put our embassy", Haley told the council after the veto.
Erdogan has taken a leading position in opposing the US move to recognize Jerusalem as Israel's capital, hosting representatives from more than 50 Muslim countries, including USA allies, in Istanbul last week for a summit in response.More news: Japanese contractors suspected of breaching antitrust laws to win maglev train bids
Trump, breaking away from decades-old U.S. policy of neutrality on the issue, announced on Dec 6 to recognise Jerusalem as Israel's capital and ordered to move the U.S. embassy to the disputed holy city.
"The United States being left alone in the vote is a concrete sign of the illegality of its decision on Jerusalem", the Turkish foreign ministry said in a statement.
"What we witnessed here today in the Security Council is an insult".
Israeli Prime Minister Benjamin Netanyahu thanked Ms Haley on Twitter for using the veto.
The UK and France had indicated in advance that they would back the text, which demanded that all countries comply with pre-existing UNSC resolutions on Jerusalem, dating back to 1967, including requirements that the city's final status be decided in direct negotiations between Israel and the Palestinians.More news: Stephen Colbert enlists Jodie Foster for Silence of the Lambs spoof
Israel considers Jerusalem its eternal and indivisible capital and wants all embassies based there.
He added that the Arab group in the United Nations will convene later to assess the situation and determine the next step in order to defend the status of Jerusalem.
Trump said his decision is a "recognition of reality" that Jerusalem is not only the historic capital of the Jewish people but also the capital of modern Israel.
Only 10 such sessions have been convened, and the last time the General Assembly met in such a session was in 2009 on Israeli actions in occupied Palestinian territories.
Resolutions by the General Assembly are non-binding, but a strong vote in support of the resolution would carry political weight.More news: Amazon Digital Day Discounts Kindle eBooks on December 29th