Finally found a solution:
export CFLAGS=-Qunused-arguments
export CPPFLAGS=-Qunused-arguments
Seems like this error is caused by the latest clang update from Apple that came with Xcode 5.1
"Update: Did not expect this to get so much attention, but here's more detail: the clang 3.4 Apple is shipping defaults to erroring on unknown flags, but CPython builds modules using the same set of flags it was compiled with originally. The system CPython was compiled with several flags that are unknown by clang, thus causing this problem."
Read more here: https://stackoverflow.com/a/22315129/2673189
Again, thanks to Wolph and pseudocubic, you were very helpful.