Israeli specialists said one of four bodies handed over by Hamas on Thursday was an unidentified woman and not Bibas.
Netanyahu accused Hamas of acting "in an unspeakably cynical manner" by placing the body of a Gaza woman in the coffin instead of Bibas, who was kidnapped along with her two sons, Kfir and Ariel, and her husband, Yarden, during the Hamas attack on Israel on October 7, 2023.
The bodies of Kfir and Ariel were among those handed over and identified.
"We will act with determination to bring Shiri home along with all our hostages - both living and dead - and ensure Hamas pays the full price for this cruel and evil violation of the agreement," he said in a video statement.
Ismail Al-Thawabta, director of the Hamas-run Gaza government media office, said Shiri Bibas' remains appear to have been mixed with other human remains after being buried in the rubble of a building destroyed in an Israeli air strike.
"Netanyahu himself issued the orders for the direct and merciless bombing, and he bears full responsibility for killing her and her children," he said in a statement.
Hamas said in November 2023 that the children and their mother had been killed in an Israeli air strike. The Israeli military said intelligence assessments and forensic analysis of the bodies of the Bibas children indicated that they were deliberately killed by their captors.
Netanyahu gave no details on a possible Israeli response, but the incident underscored the fragility of the ceasefire agreement reached with US backing and with the help of Qatari and Egyptian mediators last month.
Six living hostages are due for release on Saturday and the start of negotiations for a second phase of the ceasefire is expected in the coming days.
During the month-long ceasefire, Hamas has been releasing living hostages in exchange hundreds of Palestinian prisoners.
Thursday's release marked the first time the group had returned the remains of dead hostages.
As the tension over the Gaza ceasefire rose, Netanyahu ordered the Israeli military to intensify operations in another Palestinian territory, the occupied West Bank, after a number of explosions blew up buses standing empty in their depots near Tel Aviv.
No casualties were reported but the explosions were a reminder of the campaign of suicide attacks on public transport that killed hundreds of Israeli civilians during the Second Intifada in the early 2000s.
Both sides have repeatedly accused the other of ceasefire violations, with Hamas threatening to delay the release of hostages over what it said was Israel's refusal to allow housing materials and other aid into Gaza, a charge Israel denied.
The failure to return Shiri Bibas, and the staged public handover of the four coffins on Thursday caused outrage in Israel.
"It's like they make a joke of us," said 75-year-old Ilana Caspi. "We are so in grief and this is even more, it's like you make a punch again, another one and another one, it's really terrible."
The Israel Hayom newspaper reported that Israeli negotiators were considering seeking an extension of the 42-day ceasefire, instead of moving to a second phase, which would involve talks over hard-to-resolve issues including an end to the war and the future of Hamas in Gaza.
The Red Cross told Reuters it was "concerned and unsatisfied" by the fact that the handover of the bodies had not been conducted privately and in a dignified manner.
One of the main groups representing hostage families said they were "horrified and devastated" by the news that Shiri Bibas' body had not been returned, but called for the ceasefire to continue to bring back all the 70 hostages still in Gaza.
"Save them from this nightmare," the Hostages and Missing Families Forum said in a statement.
with Reuters
