Israel has offered to restrict the growth of settlements in the occupied West Bank, not including East Jerusalem, but the Palestinian Authority has demanded that all construction is halted before it will again attend peace talks.
Close to 500,000 Jews live in more than 100 settlements built on occupied territory since 1967. They are illegal under international law, though Israel disputes this.
The impasse has led the Palestinian Authority President, Mahmoud Abbas, to announce that he will not seek re-election.
'Terms of reference'
Speaking to the BBC, Mr Erekat said the Palestinians had decided to turn to the UN Security Council after years of failed negotiations.
Palestinians are angered at continued expansion of Jewish settlements
"We have not been negotiating for two states for 18 days or 18 months. For God's sake, we have been doing it for 18 years! Now it's a defining moment," he said.
"This is not a unilateral Palestinian declaration of independence. This is us seeking to go to the Security Council and telling them the terms of reference for the peace process," he added.
"Isn't it time now to define the two states? This is consistent with the terms of reference for the peace process because the respective Israeli governments have failed us in this."
Mr Erekat said Arab foreign ministers had decided a meeting in Cairo last Thursday to approach the Security Council with the proposal.
"We agreed that this will happen after further consultations with the European Union, the Americans, the Russians, the UN, and all the other members of the international community."
"We're not in a rush. We're going to prepare our homework very well and we're going to explain our position to the international community before doing so."
Later, Israel's prime minister warned the Palestinians against any unilateral move in their quest for independence, saying there was no "substitute for negotiations".
"Any unilateral action would only unravel the framework of agreements between us and can only lead to one-sided steps on the part of Israel," Mr Netanyahu said without elaborating.
Mr Netanyahu's spokesman, Mark Regev, told the BBC that Israel had been willing to negotiate but that the Palestinians had not.
"To be fair, it's Israel that's been calling now for months to restart the talks. Unfortunately, it's the Palestinian side that has been putting preconditions on having those talks and therefore preventing the re-emergence of a strong diplomatic dialogue," he said.
"Mr Erekat should ask himself... 'Why have they refused stubbornly and unfortunately to return to the negotiating table?'"
The BBC's Katya Adler in Jerusalem says the Palestinian Authority's move reflects its growing frustration with the deadlock in the peace process, but it is largely symbolic.
The Palestinians have already declared independence unilaterally in 1988.
The move was recognised by dozens of countries but never implemented on the ground.
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