The UNESCO World Heritage Committee earlier adopted a resolution on the "Old City of Jerusalem and its Walls," saying it was "deeply concerned" by Israeli building works and archaeological excavations in the city.
The vote comes eight days after UNESCO's Executive Council backed a resolution on the same theme that infuriated Israel.
"The theatre of the absurd continues and I decided to recall our ambassador for consultation," Netanyahu said in a statement. "We will decide what the next steps will be."
The Israeli ambassador to the UN body, Carmel Shama Hacohen, told public radio that "we are studying the possibility of breaking all contact with UNESCO".
Despite what an Israeli official called long efforts to get the resolution amended or dropped, the heritage committee, made up of 21 member states, adopted the text proposed by Kuwait, Lebanon and Tunisia.
The resolution refers throughout to the al-Aqsa Mosque/al-Haram al-Sharif religious complex, without using the Israeli name "Temple Mount."
Senior Palestinian figure Saeb Erekat hailed it's passing, saying it "aims at reaffirming the importance of Jerusalem for the three monotheistic religions, Christianity, Judaism and Islam."
"Israel has been using archaeological claims and distortion of facts as a way to legitimise the annexation of occupied east Jerusalem," he added.
Israel occupied and later annexed Palestinian east Jerusalem in 1967 in a move never recognised by the international community.
Israel considers all of Jerusalem as its undivided capital, but the Palestinians want the eastern part, including the Old City, as the capital of their future state.
UNESCO is responsible for protecting important heritage sites and is one of few international organisations that recognises Palestine as a member state.
Agencies contributed to this report