"The declaration made by the Israeli prime minister yesterday in Jerusalem prejudices the final status agreement," Foreign Ministry spokesman Frederic Desagneaux told reporters in Paris.
The international community doesn't recognize Jerusalem as Israel's capital and the city's status is a stumbling block in negotiations with Palestinians, who want east Jerusalem to be the capital of their future state.
Desagneaux said the internationally sponsored "Middle East Road Map" to peace called on both parties to negotiate an agreement on Jerusalem.
Likud: France won't agree to divide Paris
Knesset Member Ofir Akunis (Likud) said in response to the French criticism that "the Israelis don't agree to divide Jerusalem, just like the French won't agree to divide Paris."
According to MK Akunis, "Our policy in every agreement is that Jerusalem will remain under Israel's sovereignty."
On Thursday, at a ceremony marking Jerusalem's unification in the 1967 Six Day War, Netanyahu said, "Jerusalem is the capital of Israel. It has always been, will remain so forever and will never be divided."
Reacting to the speech, the French spokesman took the opportunity to restate Paris' position on the future status of Jerusalem and to criticise Israel for allowing Jewish settlers to build on disputed land.
"In France's eyes, Jerusalem should, within the framework of a negotiated peace deal, become the capital of two states," he said, adding that President Nicolas Sarkozy had told Israeli lawmakers this in a speech last year.
"Actions such as the destruction of Palestinian homes or the transformation of Arab districts risk provoking an escalation in violence. They are unacceptable and contrary to international law," Desagneaux said.
"In broad terms, France condemns the ongoing settlement, including in East Jerusalem. We reiterate the need for a freeze on colonisation activities, including those linked to natural population growth," he added.
The previous Israeli government said it might agree to give up sovereignty on some Arab neighbourhoods in east Jerusalem, but Netanyahu has ruled this out and has refused to endorse the creation of a Palestinian state.
Attila Somfalvi contributed to this report