Netanyahu had said on July 27 that he wanted Al-Jazeera expelled amid tensions over a sensitive Jerusalem holy site.
"Al-Jazeera has become the main tool of Daesh (ISIS), Hamas, Hezbollah and Iran," Communications Minister Ayoob Kara, a member of the Druze community from Netanyahu's Likud party, told a press conference.
He accused the Qatar-based broadcaster of "inciting violence which has provoked losses among the best of our sons", referring to two Druze policemen who were killed in a July 14 attack near the Al-Aqsa compound in east Jerusalem.
Netanyahu tweeted his congratulations to the minister "who on my instructions took concrete steps to end Al-Jazeera's incitement" in Israel.
The communications ministry said that "nearly all countries in the region including Saudi Arabia, Egypt and Jordan, have concluded that Al-Jazeera incites terrorism and religious extremism."
It had become "ridiculous that the channel continued to broadcast from Israel".
The ministry said it would also demand the revocation of the credentials of journalists working for the channel and cut its cable and satellite connections.
The closure of Al-Jazeera's offices would come under the remit of security officials.
Israeli authorities would also seek to limit access by the Jewish state's Arab citizens to the station's broadcasts in Arabic, the communications ministry statement said without elaborating.
Arab Israelis, the descendants of Palestinians who stayed after the state of Israel was created in 1948, make up 17.5 percent of the country's population.
Regional kingpin Saudi Arabia, Bahrain, the United Arab Emirates and Egypt broke ties with Qatar on June 5, accusing it of fostering extremism and later issuing 13 demands, including Al-Jazeera's closure.
"The Al-Jazeera channel continues to incite violence around the Temple Mount," Netanyahu wrote in a Facebook post, referring to the Haram al-Sharif compound in Jerusalem, known to Jews as the Temple Mount.
Protests erupted at the contentious site after Israel last month installed new security measures including metal detectors, following the shooting dead of the two Israeli policemen by attackers who emerged from the compound.
"I have appealed to law enforcement agencies several times to close the Al-Jazeera office in Jerusalem," Netanyahu said on July 27 in calling for the channel's expulsion.
"If this is not possible because of legal interpretation, I am going to seek to have the necessary legislation adopted to expel Al-Jazeera from Israel."
Israel has regularly accused the broadcaster of bias in its coverage of the Israeli-Palestinian conflict.
Netanyahu heads what is seen as the most right-wing government in Israeli history.
He has frequently criticised the news media, accusing outlets of seeking to undermine his government.
The latest trouble at the holy site in east Jerusalem, which Israel captured during the 1967 Six-Day War and later annexed, followed the July 14 attack.
Palestinians refused to enter the site for nearly two weeks over the new security measures imposed after three Israeli Arabs shot dead the policemen nearby.
That triggered protests which left six Palestinians dead. A Palestinian also broke into a home in a Jewish settlement in the West Bank and stabbed four Israelis, killing three of them.
The crisis ended when the Israeli authorities removed the newly installed security measures, including the metal detectors.
Palestinians, who had viewed the new security measures as an attempt by Israel to assert further control over the compound which houses the revered Al-Aqsa mosque and the Dome of the Rock, then ended their boycott of the site.
The Al-Aqsa compound has frequently been a flashpoint in the Israeli-Palestinian conflict.
Under a decades-old agreement, only Muslims are allowed to pray inside the Al-Aqsa mosque compound, although anyone can visit, including Jews.