Israeli political and religious leaders demanded Arabs and Jews end their rampage in several towns on Wednesday night, as passers-by were beaten and cars set ablaze.
Police said a driver in his thirties was brutally attacked in Bat Yam, south of Tel Aviv.
Footage published by Israeli media shows a man identified as Arab being dragged from his car before being beaten by a crowd and hit with an Israeli flag.
Police said they had tried to prevent a rally in Bat Yam after seeing social media calls for the crowd to move to nearby Jaffa, a mainly Arab area, and confront residents there.
Some of the other incidents reported to police were in Beit Shemesh, near Jerusalem, the northern cities of Haifa and Tiberias, and Lod in central Israel.
Yair Lapid, who is in talks to form a new government, decried “a bunch of pathetic racists who don’t represent Israel’s Jews”.
“The vast majority of the people of Israel, Jews and Arabs, are far better than this,” said Mr Lapid, leader of the Yesh Atid party.
“We won’t allow a situation where synagogues are burnt, innocent people are beaten and the lives of those living in mixed cities are turned into a living hell."
By midnight more than 370 suspects had been arrested across the country, police said.
Chief Rabbi Yitzhak Yosef said people must not “be dragged into provocations and to hurting people or harming property".
“According to the Torah, there is no permission to take the law into one’s hands and act violently.”
In Lod, an 8pm curfew imposed as part of a state of emergency in the city failed to quell the unrest.
Drivers were attacked with stones and cars torched, two nights after an Arab resident was shot dead, reportedly by a Jewish gunman.
Three people were arrested over the killing and, at a rally supporting the suspects outside Lod district court, a friend said they first fired in the air in self defence.
Yoel Frankenburg, 24, said his friends told him that a large group of Arabs ran towards them with stones and Molotov cocktails.
On Wednesday night, ambulance service Magen David Adom said a team of medics was “violently attacked by rioters throwing rocks from every direction”.
The disorder follows weeks of protests in occupied East Jerusalem, initially over eviction orders against Palestinians and a ban at the start of Ramadan on people gathering at the Old City’s Damascus Gate.
Last month, more than 100 people were wounded in clashes when Jewish extremists marched towards the gate chanting “Death to Arabs”.
The rally followed the election to parliament in March of far-right legislators, who are allied with Prime Minister Benjamin Netanyahu.
Mr Netanyahu on Wednesday held an emergency meeting and said he intended to send soldiers and “eliminate this anarchy”.
“You cannot take the law into your own hands," he said. "You cannot grab an ordinary Arab citizen and try to lynch him, just as we cannot watch Arab citizens do this to Jewish citizens."
Mr Netanyahu faced criticism for his government's handling of recent protests in East Jerusalem, in which hundreds of Palestinians and dozens of police officers were wounded at Al Aqsa Mosque compound and elsewhere.
Moments before Israeli nationalists were set to parade through Damascus Gate on Monday to celebrate their troops seizing the Old City in the 1967 war, the government diverted the route.
The annual event coincided with a warning by Gaza rulers Hamas, demanding that Israel withdraw its security forces from Al Aqsa Mosque by 6pm.
Seconds later sirens blared in Jerusalem for the first time in seven years, as militants fired rockets towards the city.
Israel and Gaza have since launched the most intense cross-border fire since the 2014 war.