"It's important that there won't be a bad deal," Netanyahu told ABC News on Sunday.
"A bad deal would enable Iran to remain with thousands of centrifuges, which it could use to enrich uranium, which is what you need for a nuclear bomb."
Iran and powers including the United States remained locked in intense negotiations Sunday, less than 36 hours before the cutoff time for an agreement.
The parties involved in the protracted on-off negotiations have been trying since Thursday to secure a deal that would curb Iran's disputed nuclear activities in exchange for broad relief from punishing international sanctions.
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But Netanyahu insisted sanctions should remain in place until Iran's potential capacity for ever making a nuclear bomb had been dismantled.
"As I understand it, the Iranians are nowhere near to accepting that," Netanyahu said.
"If, for any reason, the United States and the other powers agree to leave Iran with that capacity to break out, I think that would be a historic mistake."
Netanyahu accused Tehran of exploiting an interim deal to develop other elements of its nuclear program.
"It's true that they haven't raised the enrichment to the 20 percent level and beyond, but they have done other things and they're doing things we don't know about," he said.
"Rather than making a bad deal, I would just continue the sanctions regime, even toughen the sanctions regime, and get Iran to make the concessions it needs to make sure that they don’t have the capacity to make nuclear weapons."