Speaking two years after the Paris attacks, the Socialist MP added neglecting of poor areas had increased the problem.
Mr Valls said: “The French state has taken a step back in its fight against Islamic radicalisation.
“If so many people are at risk of becoming radicalised today, it’s because the government has given up trying to prevent vulnerable people from being drawn into terrorism.
“Radicalisation has taken root in France because nothing is being done to stop extremists from spreading their ideology.”
Mr Valls also warning against the rise of political Islam, which he said had been turned into an “ideological weapon” by Muslim extremists.
Asked whether he agreed with president Emmanuel Macron’s claim earlier this week that the French state had inadvertently fuelled home-grown extremism by abandoning its poorest areas, Mr Valls said: “Yes, I think so.
“I think we can all agree on that point.”
“In some neighbourhoods, especially in the most impoverished ones, extremists have attempted to fill the void left by the state.
“They impose and enforce their own laws,” Mr Valls said.
Mr Macron had earlier this week said radicalisation had taken root in France because the state had abdicated its responsibility in impoverished housing, and let local extremist preachers position themselves as champions of the poor.
The young centrist added that the government would unveil around 15 measures designed to fight radicalisation and close down “unacceptable structures” that promote radicalism and “try to fracture us”.
A worrying number of extremists who have launched or plotted attacks in France in recent years were raised in French social housing and radicalised on home soil.
Around 18,000 people have been flagged by French counter-terrorism services as being at risk of radicalisation, including 4,000 who are under very active surveillance.