"That they claim they want to announce Quds as the capital of occupied Palestine is because of their incompetence and failure," Khamenei said. Quds is known to be the Arabic name for Jerusalem.
The relevant decision will be announced by US President Donald Trump, according to a high-ranking White House official who declined to elaborate.
During separate telephone calls on Tuesday, Trumps discussed the issue with the leaders of five Middle Eastern countries, including Israel, the Palestinian Authority, Jordan, Egypt and Saudi Arabia.
Saudi King Salman Bin Abdulaziz Al Saud, for his part, warned Trump that any decision made by the United States regarding the status of Jerusalem before reaching complete settlement of the Israeli-Palestinian conflict "will damage the peace talks and increase tensions in the region."
"This dangerous step will provoke the feelings of Muslims around the world, for whom the importance of Jerusalem and the Al-Aqsa Mosque is great," he said," he said.
Earlier that day, Husam Zomlot, top representative of the Palestine Liberation Organization (PLO) in the US, said that Washington recognizing Jerusalem as Israel's capital will have "catastrophic consequences" and prompt a "strategic and political" response from the PLO.
Hamas Shows Angry Reaction
Commenting on possible relocation of US embassy in Israel to Jerusalem, Hamas chief Ismail Haniyeh warned that it would cross "every red line," according to the Iranian news agency Press TV.
"Moving the American embassy to Jerusalem is a dangerous escalation and provides cover for the extremist government of [Israeli Prime Minister Benjamin] Netanyahu to carry out its plan to Judaize the city of Jerusalem," Haniyeh said.
In separate development, Hamas spokesman Sami Abu Zuhri tweeted Tuesday on Trump's plans to recognize Jerusalem as Israel's capital, saying that Israel has "no land" which is why it cannot pick "a capital" city.
He warned that the recognition "would harm Israel" which will finally "regret" the decision."
Trump's son-in-law and senior adviser Jared Kusher said late last week that the US President was allegedly close to a decision on the recognition of Jerusalem as Israel's capital.
The PLO insists that Israel should withdraw from the Palestinian territories that it seized during the Six-Day War in 1967, when Israel proclaimed its ownership over East Jerusalem.
Jerusalem was declared the unified capital of Israel in 1980 in a move that was never recognized by the majority of UN states and international organizations.