Benjamin Natanyahu meets his supporters during an event. File

Israel's Benjamin Netanyahu on Thursday became the country's first prime minister to be indicted in office, on corruption charges, but defiantly condemned the "coup" against him and vowed to hold onto power.

The shock announcement compounded the political chaos gripping Israel, which has been without a government for months and faces the prospect of its third election in a year.

After months of suspense, Israel's longest-serving premier was charged by Attorney General Avichai Mandelblit with bribery, fraud and breach of trust.

Netanyahu immediately hit back in an often vitriolic 15-minute speech, accusing the judiciary, police and others of plotting against him with "false" and "politically motivated" allegations.

"What is going on here is an attempt to stage a coup against the prime minister," he charged in a televised address.

"The object of the investigations was to oust the right from government."

He vowed to stay on as interim premier despite potential court dates and intense political pressure.

"I will continue to lead this country, according to the letter of the law," he said.

Political rival Benny Gantz, who had been trying to form a coalition government, said it was a "very sad" day for Israel to indict a leader, but called on Netanyahu to "step down from his position and focus on the charges against him".

"There is no coup in Israel, but rather those that have barricaded themselves in power," he said.

The 70-year-old premier, nicknamed "Mr Security" and "King Bibi", has been in power since 2009 and dominates Israel's political scene.

The indictment comes with crunch talks due on forming a government, after two inconclusive general elections left the country's political system deadlocked.

Netanyahu is not legally required to resign unless he is convicted and any subsequent appeals process is exhausted, but political pressure is likely to be intense.

He may now ask the parliament, or Knesset, to grant him immunity from prosecution.

The charges against Netanyahu range from receiving gifts worth thousands of dollars to a deal to change regulatory frameworks in favour of a media group in exchange for positive coverage.

Agence France-Presse