The New York billionaire, whose campaign has long been littered with insults, called Cruz "totally unstable" and said he is "the single biggest liar I’ve ever come across, in politics or otherwise, and I have seen some of the best of them."
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Speaking at a news conference in South Carolina, Trump said he could "fight back" by bringing a lawsuit against Cruz over the fact that he was born in Canada, which Trump argues makes him ineligible to become president.
"If he doesn’t take down his false ads and retract his lies, I will do so immediately," he said.
Cruz scored a key early victory in the Republican race to pick a nominee for the November 8 presidential election when he won the Iowa caucuses earlier this month, and has been attacking Trump on a range of issues.
Trump said the Republican National Committee should intervene to stop Cruz from misrepresenting his views and policies on issues such as abortion, gun rights, healthcare and potential Supreme Court nominees.
He said he had signed a pledge with the RNC agreeing not to run a third-party candidacy, and to support the eventual Republican nominee, and the RNC should do its bit to keep the campaign fair.
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"The bottom line is the RNC is controlled by the establishment ... and special interests," Trump told reporters. "I signed a pledge, but it's a double-edged pledge. As far as I'm concerned, they're in default on their pledge."
Trump's remarks, days ahead of Saturday's Republican primary in South Carolina, came after increasingly bitter exchanges between the two candidates in recent weeks. Cruz has hammered Trump on key issues, and said on Saturday that if elected he would appoint liberals to the Supreme Court.
Trump has long said that Cruz may not be constitutionally qualified to serve as president because he was born in Canada. The US Constitution says only "natural born" citizens can become president of the United States.
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Born in Calgary, Alberta, to a US citizen mother and a Cuban father, Cruz has accused Trump of bringing up his birthplace simply because Cruz is leading some polls.
Last month, Cruz said Trump, who led the movement questioning whether the Hawaiian-born President Barack Obama was really from the United States, had asked his lawyers to look into the issue of Cruz's birth in September and concluded there were no issues.
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