During his trial in France, Arnaud Mimran said he had given one million euros ($1.1 million) in campaign contributions to Netanyahu in 2001, when the Israeli leader was not in public office.
The allegation has received widespread attention in Israel, with the country's attorney general examining Mimran's testimony.
"Mr. Mimran contributed to Mr. Netanyahu's public activity in the early 2000s, when Mr. Netanyahu was a private citizen and held no political position," a statement from the prime minister's office said.
"Those activities for Mr. Netanyahu involved media appearances and numerous travel abroad in the service of the state of Israel in accordance with the law."
It added that "Mr. Mimran, who is on trial for fraud in the range of several hundreds of millions of dollars, is trying to divert attention by means of another fraud" by accusing Netanyahu.
Signup to our newsletter and follow us on Facebook and Twitter!
The statement did not provide details of the dates or amounts of Mimran's contributions.
An Israeli justice ministry spokeswoman said Attorney General Avichai Mandelblit had ordered an examination of Mimran's testimony "immediately after he became aware of it."
Israeli law limits individual campaign contributions to 11,480 shekels (2,670 euros).
If the donations were not campaign contributions, tax authorities would have to verify whether they were declared, said Moshe Negbi, legal expert for Israeli public radio.
Netanyahu left the prime minister's office in 1999 after being defeated by Labour's Ehud Barak. In 2002, he became foreign minister in then-prime minister Ariel Sharon's government.
Mimran is one of the main suspects in a trial over an alleged scam amounting to 283 million euros involving the trade of carbon emissions permits and the taxes on them.