Speaking at the weekly cabinet meeting, Peretz said the state was undergoing "an earthquake in all fields -- diplomatic, social and financial," and accused Netanyahu of acting irresponsibly, a statement from his spokeswoman said.
Peretz was to officially submit his resignation later on Sunday, the spokeswoman told AFP.
The former head of the powerful Histadrut labour union, who left Labour to join Justice Minister's Tzipi Livni's HaTnuah party before the latest election, has been a vocal critic of Netanyahu's social policies.
He has also expressed concern over the lack of any political progress with the Palestinians since the latest round of peace talks collapsed in April.
Peretz also said he would not support the state budget, which is to be tabled for parliamentary approval on Monday.
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"I did everything I could to promote a diplomatic process and fight for the dignity of Israelis," he wrote on his Facebook page on Saturday, saying there was "deterioration" on all fronts -- diplomatic, social and economic.
"I have no intention of continuing to serve the policies of Netanyahu, who has become a prisoner to the right-wing," he said.
Opposition chief Isaac Herzog, who heads the Labour party, welcomed Peretz's resignation, calling it "the beginning of the end" of the government.
He said HaTnuah was part of the centre-left camp "which Labour will lead in the next elections until the regime is changed."
Peretz will be the second minister to quit the government this month after Interior Minister Gideon Saar, from Netanyahu's Likud party, stepped down from political life citing his desire to spend more time with his family.