British Prime Minister Liz Truss has said she is reviewing whether or not to keep the embassy where it is.
"Any change in the status quo in Jerusalem would undermine the two-state solution and will be considered a tacit recognition of the city's annexation to Israel, which will encourage the occupying state," Shtayyeh said at a weekly cabinet meeting in Ramallah in the occupied West Bank.
Israel's prime minister has already said he was grateful that Truss was considering the move.
The United States moved its embassy from Tel Aviv to Jerusalem in 2018, a move that infuriated Palestinians. Honduras, Guatemala and Kosovo have since followed suit.
Should Truss do the same, Shtayyeh said, it would hurt Britain's relations with the Palestinians, Arabs and Muslims.
A spokesperson for the British government's Foreign, Commonwealth & Development Office told Reuters in a statement that Truss "understands the importance and sensitivity of the location of the British embassy in Israel".
"We are undertaking a review of the current location to ensure that we are in the best possible position to continue promoting British interests in Israel, peace and stability in the region, and in support of a two-state solution," the spokesperson said. "We will not speculate on the outcome of any review before it concludes."
The Palestinians want east Jerusalem as the capital of a future state. U.S.-brokered peace talks between Israel and the Palestinians collapsed in 2014.
(Reporting by Ali Sawafta, Dan Williams and Nidal al-Mughrabi, Writing by Nidal al-Mughrabi, Editing by William Maclean)
