He cited hoax messages about kidnappings that were shared on WhatsApp in India and led to the lynching of seven innocent people, according to reports in The Verge.
Palihapitiya called out not only Facebook, but Silicon Valley's entire system of funding.
He claimed money pumped into the region would be better spent addressing problems like climate change and disease.
Speaking to an audience at Stanford Graduate School of Business, Palihapitiya said: "I think we have created tools that are ripping apart the social fabric of how society works.
"The short-term, dopamine-driven feedback loops we've created are destroying how society works.
"No civil discourse, no cooperation; misinformation, mistruth.
"And it's not an American problem — this is not about Russian ads. This is a global problem."
This is not the first time a prominent figure at Facebook has spoken out about the social network.
In October Justin Rosenstein, who developed the iconic "Like" feature for the social media site, revealed that just a decade later, he has cut himself off from the allure of notifications and other online distractions.
Rosenstein says he has banned all apps on his phone, including Facebook, because he doesn't trust himself not to get addicted to them.
What started as a Silicon Valley success story could end in a future where people are permanently distracted by devices from the world around them, he argues.
The claims were made during an in-depth interview with the Guardian, written by Paul Lewis.
Rosenstein believes the lure of social media and other apps can be as addictive as heroin and that they are having a noticeably detrimental effect on people's ability to focus.
He is also concerned that profit motives have led to the app notification becoming just another way for companies to sell their products, by driving users back to apps that host their adverts.
As a result he set up his laptop up to block his access to Reddit, removed himself from Snapchat and placed limits on the amount of time he spends on his former employer's product Facebook.
Rosenstein has now taken this a step further, by setting up a parental control feature on his iPhone that bans him from downloading any new apps.
He argues that the solution to the problem may be state regulation of apps, which he views on a par with tobacco advertising, to minimise any harm they may be found to cause.
Speaking to the Guardian, he said: "It is very common for humans to develop things with the best of intentions and for them to have unintended, negative consequences.
"Everyone is distracted, all of the time.
"One reason I think it is particularly important for us to talk about this now is that we may be the last generation that can remember life before.
"If we only care about profit maximisation, we will go rapidly into dystopia."
Rosentstein was part of a small team that decided to create a one click way of indicating support across Facebook.
It lead to a massive upswing in popularity on the platform, kick starting a trend for copycat features that keep users hooked in.
His concerns over notifications are backed up by the latest scientific research into apps, which point to some of the negative effects that they can have.
In one recent study, experts examined the effect of more than 500,000 pop-up notifications and found that one third had the power to bring us down.
Automated alerts were found to have the biggest impact, and work-related messages came in second.
Researchers at Nottingham Trent University examined the effect of notifications over five weeks.
In a group of 50 participants, they found that 32 per cent of the digital communications had the power to bring about negative emotions.
This included causing people to feel hostile, upset, nervous, afraid or ashamed, according to reports in the Telegraph.
To make their findings, the researchers created an app called NotiMind, which participants installed on their handsets.
It collected information automatically about the nature and frequency of notifications.
Users were also asked to use it report their mood throughout the day.
Facebook's response
In response to the criticisms, a spokesman for Facebook said: "Chamath has not been at Facebook for over six years.
"When Chamath was at Facebook we were focused on building new social media experiences and growing Facebook around the world.
"Facebook was a very different company back then, and as we have grown, we have realised how our responsibilities have grown too.
"We take our role very seriously and we are working hard to improve.
"We've done a lot of work and research with outside experts and academics to understand the effects of our service on well-being, and we're using it to inform our product development.
"We are also making significant investments in people, technology and processes, and – as Mark Zuckerberg said on the last earnings call – we are willing to reduce our profitability to make sure the right investments are made."
