In a non-binding resolution on Thursday, the parliament stated its support to "EU-wide guidelines on the labelling of Israeli settlement produce." The motion was endorsed by a swiping 525-70 majority, with 31 abstaining, Xinhua reported.
"It is a distortion of justice and of logic," Netanyahu said in a statement, adding that the Jewish people "have historical memory of what happened when Europe labelled Jewish products".
The vote was hailed as a triumph to the Palestinian-led Boycott, Divestment and Sanctions movement (BDS), which has been campaigning to boycott Israel.
It came a day after Netanyahu arrived in London in a highly charged visit, with rallies protesting the Israeli control of the Palestinian territories and anti-rallies in support of the Jewish state.
The vote followed a call by 16 European countries in April, which urged EU officials to advance the labelling of the products in member countries originating from the settlements.
The EU has deliberated for several years on whether to mark products originating from the settlements on lands that Israel occupied in the 1967 Mideast War.
These lands were slated to be part of a future Palestinian state amid the two-state solution.
While proponents say the move would increase pressure on Israel to resume negotiations amid the economic sanction, opponents of the move, including Israeli officials, say it is part of a delegitimization campaign against Israel, which would push peace talks further away.
Israel's status deteriorated on the international front in recent years amid the halt of negotiations, the ongoing construction in the settlements orchestrated by nationalist right- wing governments, as well as nationalist legislation moves by the Israeli parliament.
Several countries have already announced their recognition of a Palestinian state, a move that Israel said would motivate Palestinians to make gains outside of the negotiations table.