The hawkish premier warned Israel would retaliate if the Palestinians proceed with applications to become a party to 15 key UN treaties and protocols.
"These will only make a peace agreement more distant," he said of the applications the Palestinians made on Tuesday to the UN.
"Unilateral steps on [the Palestinians'] part will be met with unilateral steps on our part. We are ready to continue the talks but not at any price," Netanyahu told his cabinet.
Kerry, the driving force behind the US-brokered peace talks, has appealed Palestinian president Mahmud Abbas to withdraw the treaty applications.
More From This Section
But Abbas has rejected his plea and sought to strengthen negotiating hand by joining UN agencies, especially the International Court of Justice.
Both Israelis and Palestinians have publicly blamed each other for the crisis in the negotiations.
Palestinians are upset that Israel delayed and then cancelled the promised release of 26 Palestinian prisoners jailed in Israel for past involvement in terror attacks.
"The Palestinians substantially violated the understandings that were reached with American involvement. The Palestinians' threats to appeal to the UN will not affect us. The Palestinians have much to lose by this unilateral move, he was quoted as saying by The Jerusalem Post.
"They will achieve a state only by direct negotiations, not by empty statements and not by unilateral moves. These will only push a peace agreement farther away," Netanyahu said.