The Israeli Prime Minister's remarks were leaked from a closed-door meeting with eastern and central European leaders in Budapest.
"The European Union is the only association of countries in the world that conditions the relations with Israel... in every area on political conditions," he said in a recording heard by AFP.
"It's crazy, it's absolutely crazy," he added.
Brussels has repeatedly condemned Israel's building of Jewish settlements in the occupied West Bank and its crackdown on civil society groups critical of the government.
Netanyahu cited China, Russia and India as countries who do business with "innovation giant Israel" and "don't care about political issues."
"Europe has to decide whether it wants to live and thrive or if it wants to shrivel and disappear," he told the prime ministers of the so-called Visegrad group - Hungary, Poland, Slovakia and the Czech Republic.
"Don't undermine that one Western country that defends European values and European interests and prevents another mass migration to Europe."
Netanyahu toned down his rhetoric in official comments after the meeting, describing the EU's criticism of Israel as an "anomaly".
He made the remarks on the second of a three-day visit to Budapest, the first such trip by an Israeli leader since the fall of communism in 1989.
Observers say Israel is seeking closer ties with EU nations that can help defend its interests in international forums.
"With their backing, it will be harder for the EU to pass resolutions critical of Israel," Middle East expert Peter Lintl said.
'Patriot' pair
At the news conference, Netanyahu praised the Visegrad group - whose nationalist stances are also a growing thorn in Brussels' side - for supporting Israel "on several occasions" at EU meetings.
The Israeli premier has found a particularly willing ally in his Hungarian counterpart Victor Orban.
Both men are right-wingers enamoured of US President Donald Trump and with a disdain for the left-leaning liberal global order bankrolled, as they see it, by the likes of Jewish US billionaire George Soros.
They also both insist on their countries' right to defend themselves against perceived outside threats.
Israel has blocked off its border to Syria, where regime forces fight a US-led alliance of Kurdish and Arab fighters.
Netanyahu said Israel had repeatedly carried out strikes against Iranian convoys transporting weapons in Syria destined for the Jewish state's arch-enemy Hezbollah.
"When we see them doing this, we take military action against them. We've been doing this dozens and dozens of times," he said.
Orban, a virulent opponent of Muslim immigration who has been in power since 2010, hailed Netanyahu as a "patriot".
"We share Israel's notion of protecting external borders," said the populist strongman who has erected fences on Hungary's southern EU frontiers as part of hardline measures against asylum-seekers.
"If Europe does not cooperate with Israel, it is punishing itself," Orban added.
Netanyahu's trip comes at a sensitive time for Orban, who is under fire at home over his running battle against Budapest-born Soros.
Many in Hungary's 100,000-strong Jewish population - one Europe's largest - have accused Orban of encouraging anti-Semitism to stave off growing support for the far-right.
They decried as "poisonous" a recent government poster campaign attacking Soros over his alleged support for mass immigration.
Some of the posters were daubed in anti-Semitic graffiti.
Orban has stressed that the campaign was about Soros's political views and that Hungary has " zero tolerance" toward anti-Semitism.
"It is possible to argue over the aims of the campaign, but for me, it became unacceptable because of one thing: the Jews in Hungary have started to be afraid," Andras Heisel, who heads Hungary's largest Jewish organisation, said at an event attended by Netanyahu and Orban at Budapest's Great Synagogue on Wednesday evening.
Netanyahu however earlier defended Orban, saying that Hungary was "at the forefront" of countries fighting anti-Zionism.
