The Lofoten-Vester¿len continental margin in Norway shows pronounced elongated positive and negative gravity anomalies. The source of these anomalies cannot be explained by the flat bathymetry, but can be explained by the crustal density anomalies that are observed. We propose a boudinage mechanism to explain the generation of these density anomalies and respective crustal layer undulations. Free-air gravity anomalies have been derived using ERS-1 and Geosat altimetry data and have been validated by comparison with shipborne data. Structural models of the margin are available from extensive seismic surveys, which have been used to carry out a gravity inversion to cross-validate the observed gravity anomalies with seismic data. The crustal structure data reveal two wavelengths of crustal undulations. The first is related to crustal blocks separated by listric faults, and the second wavelength is related to an undulated Moho. The undulations were likely generated during the opening of the North Atlantic, 56 Myr ago, and were particularly formed during the transition phase between rifting and spreading. The dominating wavelengths of the undulations are 46 and 109 km, respectively. To explain the evolution of crustal undulations in an extensional stress regime, we use a two-dimensional finite element model. A viscoelastoplastic power law rheology is used to study the growth of instabilities developing in a three-layer lithosphere. Prescribed random vertical undulations show wavelength-dependent growth under extension, and the dominating wavelengths are 18--65 and 129 km, respectively. These results are in good agreement with the gravity observations and provide a strong indication that the proposed boudinage mechanism influences the evolution of the passive margin segment.