The tough new nationwide measures mean schools, non-essential shops, museums and gyms will close at midnight until January 19.
In a rare televised address, Mark Rutte told the nation: “We have to bite through this very sour apple before things get better.”
As he spoke from his office in The Hague, protesters could be heard blowing whistles outside.
“The reality is that this is is not an innocent flu as some people – like the demonstrators outside – think,” he said. “But a virus that can hit everybody hard.”
From Tuesday, all non-essential shops will close along with businesses such as hair salons, museums and theatres.
All schools and universities will have to switch to remote learning from Wednesday. Nurseries will be closed to all except children of key workers.
The government also urged people to receive a maximum of two guests over the age of 13 per day, but relaxed the rule slightly for December 24-26, saying three people can visit on those days.
“We realise as a cabinet how intense and drastic the measures we are taking today are,” Mr Rutte said. “Especially so close to Christmas.”
As news of the looming lockdown leaked out before his speech, many people keen to take their last chance at Christmas shopping flocked into city centres.
Queues formed at shops, museums and even pot-selling coffee shops as people tried to beat the lockdown.
Bars and restaurants have been closed since mid-October, although many restaurants, cafes and coffeeshops have offered takeout sales.
The partial lockdown initially slowed high infection rates, but they have been rising again in recent days.
The seven-day rolling average of daily new cases in Netherlands has risen over the past two weeks from 29.22 per 100,000 people on November 29 to 47.47 on December 13.
“It’s serious. It’s very serious,” health minister Hugo de Jonge said on Monday ahead of a cabinet meeting.
“We see the infection numbers rising sharply in recent days, we see that hospital admissions are increasing again, the pressure on the health care sector remains high.”
Mr Rutte’s speech came a day after neighbouring Germany announced similar restrictions in an attempt to reduce its stubbornly high infection rates. Those measures also go well into January.
Around 10,000 people in the Netherlands are confirmed to have died of Covid-19 since the start of the outbreak.
Mr Rutte said that with vaccinations starting in the new year, 2021 would be a year “of hope, of light at the end of the tunnel”.