The French government blamed the move on "baseless verbal attacks" from Italy's leaders, which it said were "unprecedented" since the end of the second world war.
The yellow vest movement is directly challenging the French government following weeks of street protests against what it sees as the unfair treatment of the rural working class.
It said Italy's attacks were without precedent since World War II.
The latest spat erupted on Tuesday after Italy's Deputy Prime Minister and Five Star Chief Luigi Di Maio said he had met with "yellow vest" anti-government protesters outside Paris.
France is recalling its ambassador to Italy amid mounting tensions relating to yellow vest protesters.
Relations between France and Italy have been tense since the Five Star Movement (M5S) and right-wing League parties came to power in Italy in June 2018. "To disagree is one thing, to exploit a relationship for electoral aims is another", it added.
And De Maio's fellow deputy prime minister, Matteo Salvini, has lambasted President Emmanuel Macron directly by saying he is "close, with all my heart... to the French people, the millions of men and women who live in France under a awful government and bad president". Di Maio accused France last month of fuelling poverty in Africa, suggesting it was a neo-colonial power.
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France's Europe minister, Nathalie Loiseau, said the decision to recall the ambassador was rare but necessary.
The two governments have also clashed over issues such as immigration.
He invited them and other yellow vests to a follow-up meeting in Rome, claiming on Twitter that 'the wind of change has crossed the Alps'.
He called for the two countries to find a solution to problems that have caused tensions, including French border controls on the Italian border and demands by Rome for the extradition of far-left Italian fighters who live in France.
"This new provocation is not acceptable between neighboring countries and partners in the European Union", a foreign ministry spokesman said in a daily online briefing.
Salvini poured fuel on the fire last month as well, saying in a Facebook video that "I hope the French will be able to free themselves of a awful president". "In the political campaign our friend is Germany and so we had to do the campaign against France", he said, prompting laughter from Merkel. "We're not interested in controversies: we are serious people and we are defending Italian interests".