The contentious new ad, which Likud released on Saturday, implied that a vote for the left would benefit the jihadist IS.
The ad features actors portraying jihadists driving in a white pick-up with two standing in the rear carrying the black flag of IS, the extremist Sunni Muslim group that has seized control of large parts of Syria and Iraq.
The truck pulls up next to a car driven by an Israeli and a "jihadist" asks: "Which way to Jerusalem brother?"
"Take the left," the driver answers and the pick-up drives off, one of the actors firing an automatic rifle into the air.
Two slogans appear on the screen: "The left will give in to terrorism" and "It's us or them, there is only Likud, only Netanyahu."
The clip's background music is a catchy hip-hop song by Amman-based Palestinian group Torabyeh called "Ghorbah", which can be translated from Arabic as "exile".
Torabyeh denounced the unauthorised artistic collaboration with the Israeli party's "electoral propoganda attacking the so-called Zionist 'left-wing'."
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"We strongly condemn and reject this ruthless infringement of intellectual property rights and the distortion of the reputation of Torabyeh," the group said on their Facebook page.
They said use of their song in this context "implicates the Torabyeh group by containing serious accusations of terrorism and association with IS which is consequently putting the group’s members lives at risk".
Torabyeh stressed it rejected "all forms of cooperation with the Zionist enemy", and pledged to "take all necessary legal action against those responsible".
There was no immediate comment from Likud to Torabyeh's threat.
The ad also drew fire from the leftwing coalition opposing Likud, the Zionist Union, which accused Netanyahu of "colossal" security failures.
The Zionist Union, formed in December as an electoral alliance of Israel's Labour Party and the centre-left HatNuah, denounced the ad and "the colossal failure of Benjamin Netanyahu in the field of security".
"He freed terrorists with blood on their hands and strengthened Hamas, and during his tenure Iran became a state that has reached the nuclear threshold," it said in a statement.
Security will be a key issue in Israel's March 17 general election, which was called early after the collapse of Netanyahu's ruling coalition.
Recent polls have shown a tight race between Likud and the Zionist Union, but also indicate that many voters remain undecided.