In a palace statement, he said such an act would "defy the nation's culture".
Princess Ubolratana Mahidol, 67, has been nominated as a candidate for a party allied to divisive former PM Thaksin Shinawatra.
Such a move would break with the tradition of the Thai royal family publicly staying out of politics.
Analysts say the king's intervention is likely to lead to the election commission disqualifying her from the 24 March election.
The vote is being closely watched as the first chance for Thailand to return to democracy after five years under military rule.
In a palace statement read out on all Thai TV networks, the king said: "Even though she has relinquished her royal titles in writing, she maintained her status and carried herself as a member of the Chakri dynasty.
"Involvement of a high-ranking member of the royal family in politics, in whatever way, is considered an act that defies the nation's traditions, customs and culture, and therefore is considered extremely inappropriate."
The statement cited a passage of the constitution that says the monarchy should maintain political neutrality.
Hours earlier, Princess Ubolratana defended her decision to run for office.
In an Instagram post, she reiterated that she had relinquished all her royal titles and now lived as a commoner.
She said she wanted to exercise her rights as an ordinary citizen by offering her candidacy for prime minister. She said she would work with all sincerity and determination for the prosperity of all Thais.