Eight Turks were killed in the raid.
Erdogan said his country is cutting military and commercial ties and will impose further sanctions because of Israel's refusal to apologize for the incident, Today's Zaman reported.
"Israel has always acted like a spoiled boy in the face of all U.N. decisions concerning itself," Erdogan said.
"We are totally suspending our commercial ties, military and defense ties," he said. "They are being frozen entirely."
Erdogan's remarks came one day after the expulsion of senior-level diplomats from the Israeli Embassy in Ankara.
A U.N. panel investigating the takeover of the aid ship said Israeli soldiers used "excessive and unreasonable" force against its passengers. But it said the Israeli blockade of Gaza was legal.