"Let's call those rumors what they are: lies," he said during a breakfast meeting with the Jewish community in south Florida. "They are cloaked in concern for Israel, but the real concern is about partisan politics."
The billionaire media mogul, who is Jewish, is a former Democrat who ran for mayor as a Republican and became an independent last year.
He ruled out an independent run for the presidency in February and has yet to throw his support behind either of the major party candidates, Democratic contender Obama and presumptive Republican nominee John McCain.
The false rumors that Obama is a secret Muslim have persisted since the African-American launched his campaign last year, even though he is a practicing Christian.
"Israel is just being used as a pawn, which is not that surprising, since some people are willing to stoop to any level to win an election," Bloomberg told the Jewish Federation of South Palm Beach County.
"This is wedge politics at its worst, and we've got to reject it loudly, clearly, and unequivocally."