The 15-member Council gathered in New York to vote on a draft resolution authored by Algeria recommending the admission of the State of Palestine for UN membership.
The membership was blocked with a vote of 12 in favor and two abstentions, including the UK and Switzerland.
Before the voting, Algeria's envoy to the UN Amar Bendjama said it is time for Palestine to take its rightful place among the community of nations, and seeking UN membership is a fundamental expression of Palestinian self-determination.
"Today, the call of history resounds once again. And it is my honor to put before the council the recommendation to admit the State of Palestine as a full member of the United Nations.
"It is a critical step towards rectifying a longstanding injustice," Bendjama said, urging every member to support the resolution.
Palestine was accepted as an observer state of the UN General Assembly in 2012, allowing its envoy to participate in debates and UN organizations but without a vote.
States are admitted to membership in the UN by a decision of the General Assembly upon the recommendation of the Security Council, according to the UN Charter.
A council resolution needs at least nine votes in favor and no vetoes by the permanent members -- US, Britain, France, Russia or China -- to pass.
Palestine’s application for full UN membership comes amid a deadly Israeli offensive on the Gaza Strip since an Oct. 7 cross-border attack by the Palestinian group Hamas, which has killed nearly 34,000 Palestinians.