The US did not veto a UN resolution demanding an end to Israeli settlement building because it was in accordance with American "values".
Secretary of State John Kerry said the US had done "more than any other country" to support Israel, but that it could not "stand idly" by as the region becomes more unstable.
"If we were to stand idly by, and know that in doing so we were allowing a dangerous dynamic to take hold - which promises greater conflict and instability - to a region in which we have vital interests, we would be derelict in our own responsibilities," Kerry said.
He added: "Friends need to tell each other the hard truths."
"The US did in fact vote in accordance with our values - just as previous administrations have done at the Security Council before us," he said.
Downing Street said it was "not appropriate" for John Kerry to brand the Netanyahu administration as the "most right wing in history".
The Israeli prime minister said the country would stop funding for a number of UN bodies deemed as 'hostile' to Israel.