UK Foreign Secretary William Hague said he would seek a strong global response to the "appalling crime". UN chief Ban Ki-moon said it was a "flagrant violation of international law".
Syria's government has blamed the deaths on "armed terrorist gangs".
This is one of the bloodiest attacks in one area since the uprising against President Bashar al-Assad began in March 2011.
Activists say some of the victims died by shelling, while others were summarily executed, or butchered by the regime militia known as the "shabiha".
UN-Arab League peace envoy Kofi Annan, and the Arab League have also condemned Friday's assault.
France's Foreign Minister Laurent Fabius said he was making immediate arrangements for a Paris meeting of the Friends of Syria group, which includes Western and Arab nations, but not Russia or China, who have blocked previous attempts to introduce UN sanctions.
Fighting in Syria has continued despite the deployment of some 250 UN observers monitoring a ceasefire brokered by Mr Annan - a ceasefire which the BBC's Jim Muir in neighbouring Lebanon says is now "pretty fictional".
The UN says at least 10,000 have been killed since the protests began.
UN 'refused to come
A joint statement from Mr Ban and Mr Annan said firing heavy weapons into a residential neighbourhood was a "flagrant violation of international law" which must stop and those responsible should be held to account.
Mr Annan would be contacting Syria's
government to "convey in the clearest terms the expectations of the
international community, and he will also do so during his forthcoming
visit to Syria", it said.
Mr Hague said he would be calling for an urgent session of the UN Security Council in the coming days. Arab League head Nabil al-Arabi called the assault a "horrific crime" and urged the Security Council to "stop the escalation of killing and violence by armed gangs and government military forces," the Reuters news agency reports.
The opposition Free Syrian Army says it can no longer commit to the ceasefire unless the Security Council can ensure that civilians are protected, the AFP news agency reports.
Horrific video footage has emerged from Houla of dozens of dead children, covered in blood, their arms and legs strewn over one another. It is unverified, but our correspondent says such images would be difficult to fake.
International media cannot report freely in Syria and it is impossible to verify reports of violence.
A team of UN observers visited the town on Saturday and afterwards Maj-Gen Mood said they could confirm "the use of small arms, machine gun[s], artillery and tanks."
But he did not say who was behind the killings.
Our correspondent says local people are angry that the observers failed to intervene to stop the killing.
Abu Emad, speaking from Houla, said their appeals to the monitors failed to produce action.
"We told them at night, we called seven of them. We told them the massacre is being committed right now at Houla by the mercenaries of this regime and they just refused to come and stop the massacre."
The opposition Syrian National Council (SNC) said more than 110 people died. The SNC's Ausama Monajed told the BBC the regime was selecting vulnerable towns to "teach the entire country a lesson".
"It is beyond humanity what we have seen," he said.
Earlier, in a letter to the Security Council, Mr Ban said the Syrian opposition controlled "significant parts of some cities".
He said that "established terrorist groups" could have been behind some of the recent bomb blasts in Syria judging from the sophistication of the attacks.
He said the situation remained "extremely serious" and urged states not to arm either side in the conflict.
Earlier this month, a bombing in Damascus left 55 dead in an attack which the government blamed on al-Qaeda. The attack came amid mounting fears that the terrorist group was taking advantage of the conflict to gain a foothold.
On Thursday, a UN-mandated panel said Syrian security forces were to blame for most abuses in the conflict, which has continued despite the presence of the UN observers.
Mr Annan's six-point peace agreement ordered a cessation of violence on 12 April. While casualties appeared to fall after the truce, the fighting quickly resumed to previous levels.
Are you in Syria? Do you
have friends or family there? Send us your comments and experiences
using the form below. At no time should you endanger yourself or others
or take any unnecessary risks.