The Indian airline's ability to fly over Saudi Arabia would substantially reduce the flight time.
At present, Israel's flag carrier El Al is the only airline offering direct flights between Israel and India on the Tel Aviv-Mumbai route.
Air India also flies from Tel Aviv to Bangkok.
But an Air India spokesman denied the Prime Minister's comments several hours later, stressing they had not received any confirmation and had only submitted a request for a flight along that route. Earlier, the national carrier has sought permission from regulatory body General Authority of Civil Aviation in Riyadh for thrice-a-week flight services between Delhi and Tel Aviv but permission was not granted to the carrier, as reported by Reuters. As per reports, the first flight between New Delhi and Tel Aviv is scheduled to take off in a few weeks from now.
The Saudi government had banned flights headed to Israel from using its airspace for 70 years.
The new Israel-India route was announced by Indian Prime Minister Narendra Modi during his visit to Israel in July.
Netanyahu said that Saudi Arabia has not granted overfly permission to Israeli national carrier El Al, which operates four weekly flights to Mumbai.
Israeli Prime Minister Benjamin Netanyahu and Indian Prime Minister Narendra Modi signed protocol between India and Israel on Amendments to the Air Transport Agreement that envisages entering into cooperative marketing arrangements, such as code share, bloc space or any other JV agreement for the goal of operating the agreed services on the specified routes.
But the decision also signifies warmer ties between Israel and Saudi Arabia, which have been seen as having increasingly covert relations over the previous year.