The longest serving leader narrowly lost a vote of confidence in parliament to an unlikely coalition of left-wing, centrist, right-wing and Arab parties on Sunday. Naftali Bennett, the right-wing leader of the Yamina party, will take over and lead a so-called “government of change” for the next two years.
The power-sharing agreement will then see Yair Lapid, leader of the centrist Yesh Atid, succeed him mid-way through the term.
Mr Netanyahu, who spent 12 years in office, will remain as head of the right-wing Likud party and become leader of the opposition.
But, he stressed his time on the political sidelines will be short-lived and vowed to topple the new “dangerous government”.
Speaking ahead of the vote, Mr Netanyahu said: “If it is destined for us to be in the opposition, we will do it with our backs straight until we topple this dangerous government and return to lead the country in our way.
“With God’s help, it will happen a lot earlier than you think it will.”
The 71-year-old then went on a scathing attack on his successor and said Mr Bennet did not have the right credentials to lead Israel.
Mr Netanyahu claimed the 49-year-old high-tech millionaire “does not have the international standing”.
Mr Netanyahu added: “He doesn’t have the credibility, he doesn’t have the capabilities, he doesn’t have the knowledge and he doesn’t have the governmental support to allow him a real defence [against Iran].”
Mr Bennett’s party have been thrust into power from the political doldrums, despite winning just six of the 120 seats in parliament at the last election.
The coalition succeeded in removing Mr Netanyahu from power by just 60 votes to 59.
The new government largely plans to avoid sweeping moves on the international stage, such as policy toward the Palestinians and plans to focus on domestic reforms.
Mr Bennett said: “Renewal of the nuclear agreement with Iran is a mistake, an error that would again grant legitimisation to one of the darkest and violent regimes in the world,”
“Israel will not allow Iran to equip itself with nuclear weapons.”
US President Joe Biden is yet to make a decision on the 2015 agreement since he took over the White House in January.
Mr Biden congratulated the new Israeli government and said he looked forward to strengthening the “close and enduring” relationship between the two countries.
In a statement, he said: “My administration is fully committed to working with the new Israeli government to advance security, stability, and peace for Israelis, Palestinians, and people throughout the broader region.”