"Freezing taxes can be useful neither for Israel nor for the Palestinians," Rivlin told ambassadors accredited to Israel in a speech.
In his speech, a copy of which was seen by AFP, Rivlin said that Palestinian president Mahmud Abbas "continues to reject direct negotiations and tries to impose a deal by force", adding that such an approach "warrants sanctions".
Israel on Saturday delayed the transfer of $127 million (106 million euros) it collects on behalf of the Palestinians in retaliation for the Palestinian move to join the ICC and press war crimes charges against the Jewish state.
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The tax revenues make up two thirds of the Palestinian Authority's annual budget, excluding foreign aid.
"Sanctions against the PA should be in line with Israeli interests, and a tax freeze is not," Rivlin said.
The Palestinians' ICC bid is firmly opposed by Israel and the United States, and follows a failed draft UN Security Council resolution calling for a final peace deal.
Israeli officials suggested on Sunday that the tax freeze was only the first of a series of punitive measures it could take against the Palestinian government.