In a telephone conversation with Turkish President Recep Tayyip Erdogan, Putin called for the Palestinians and Israel to "hold back" and renew negotiations.
"This kind of measure can block possible paths to peace in the Middle East," the Kremlin said of US President Trump's move.
Trump's defiant announcement, making good on a core campaign pledge, ended seven decades of US ambiguity on the status of the Holy City, which is vociferously claimed by both Israelis and Palestinians.
Earlier, the Russian Foreign Ministry said Trump's decision threatened security and risked aggravating already complicated Israeli-Palestinian ties.
"Moscow views the decisions announced in Washington with serious concern," the ministry said in a statement.
Moscow stressed its traditional view that the two sides should negotiate their long-running conflict during "direct Palestinian-Israeli talks."
Moscow said earlier that it considers east Jerusalem to be the capital of a future Palestinian state, and west Jerusalem the capital of Israel.
Israel occupied east Jerusalem and the West Bank in 1967. It later annexed east Jerusalem in a move never recognised by the international community.
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