Netanyahu said on Tuesday he planned to annex the Jordan Valley, a large swathe of the occupied West Bank, if he wins a closely contested election just a week away.
Israel captured the West Bank in a 1967 war and Palestinians, who signed interim peace deals with Israel in the 1990s that include security cooperation, seek to make it part of a future state.
The Arab League "considers his announcement a dangerous development and a new Israeli aggression by declaring the intention to violate the international law," Arab foreign ministers said in a statement after a meeting in Cairo.
"The league regards these statements as undermining the chances of any progress in the peace process and will torpedo all its foundations," the statement said.
Arab foreign ministers had been holding a meeting in Cairo, seat of the Arab League, but added an emergency session after Netanyahu made his comments on live television.
Around 65,000 Palestinians and 11,000 Israeli settlers live in the Jordan Valley and northern Dead Sea area, according to the Israeli human rights group B'Tselem. The main Palestinian city is Jericho, with around 28 villages and smaller Bedouin communities.
Jordanian Foreign Minister Ayman Safadi on Twitter called Netanyahu's plan a "serious escalation." Jordan and Egypt are the only Arab states to have peace treaties with Israel.
Hanan Ashrawi, a senior official in the Palestine Liberation Organization, wrote on Twitter that the Israeli leader was out to impose a "greater Israel on all of historical Palestine and (carry) out an ethnic cleansing agenda."
Fighting for his political life after an inconclusive election in April, Netanyahu also reaffirmed a pledge to annex all of the settlements Israel has established in the West Bank.
White House senior adviser Jared Kushner said in early May that he hoped Israel would take a hard look at President Donald Trump's upcoming Middle East peace proposal before "proceeding with any plan" to annex West Bank settlements.
Saudi Arabia condemned Netanyahu's comments and called for an emergency meeting of the Organization of Islamic Cooperation, state news agency SPA said.
Qatar reiterated its support for a two-state peace solution.