Trump triggered an international uproar when he made his comments in response to last week's deadly shootings in California by two Muslims who authorities said were radicalized.
'You are a disgrace not only to the GOP but to all America,' Prince Alwaleed, the chairman of Kingdom Holding, said on his Twitter account, addressing Trump and referring to the Republican Party.
'Withdraw from the U.S presidential race as you will never win,' the prince, who is worth $24.9 billion added.
Within hours, Trump's response came back, also on Twitter.
'Dopey Prince @Alwaleed_Talal wants to control our U.S. politicians with daddy's money,' he said. 'Can't do it when I get elected.'
Trump's comments have already cost him business in the Middle East, with a major chain of department stores halting sales of his glitzy 'Trump Home' line of lamps, mirrors and jewellery boxes.
On Thursday, Dubai real estate firm Damac, which is building a $6 billion golf complex with Trump, stripped the property of his name and image.
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