High school student Shira Banki, 16, was one of six people wounded in the assault. Her death highlighted the city's sharp social divisions between Orthodox and secular Jews.
The suspect was arrested at the scene. Police have come under criticism for not keeping him under surveillance, as he had been released from prison only weeks earlier after being jailed for stabbing three at the same event in 2005.
"We won't permit the terrible murderer to challenge the basic values on which Israeli society is built." Prime Minister Benjamin Netanyahu said in a statement after sending his condolences to the family.
"We reject with disgust any attempt to impose hatred and violence among us and will bring the murderer to justice," it said.
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"Shira was murdered because she bravely supported the principle that everyone has the right to live their lives respectfully and with security."
The annual parade in Jerusalem, which drew about 5,000 this year, has long been a focus of tension between Israel's predominant secular majority and the ultra-Orthodox Jewish minority, who object to public displays of homosexuality.
The same event every year in Tel Aviv generally passes peacefully as secular Jews hold greater sway in what is the country's entertainment and business hub.
The stabbings shocked Israel and drew condemnations from across the political spectrum. Israel's president, Reuven Rivlin, warned "we must not be deluded, a lack of tolerance will lead us to disaster."
Writing by Allyn Fisher-Ilan; Editing by Tom Heneghan.
