Newcastle have failed to build on last season's surprise fifth-placed finish in the Premier League and currently sit 16th in the table after a 6-0 thrashing by Liverpool at the weekend.
The Sky Sports pundit feels the number of foreign players has now reached a 'tipping point' and that clubs are losing their identities.
"I must admit 12 months ago when everyone was going big on Newcastle, and we enjoyed everything they did last year, but they talked about this genius scouting system, the fact they could go and pick up players in France," Neville told Monday Night Football.
"I'm not having it. Seven players in that second half on the pitch were from France. But forget France, it could have been Egypt, Morocco, Nigeria, Spain, Argentina. For me, it's gone too far, it cannot be right.
"There was a sense in Alan Pardew's interview, reading between the lines, that there must be cliques developing in that dressing room.
"I've been harping on about this for a couple of months. People think 'oh, an England coach, making excuses'. It's staring us in the face.
"These are your Newcastles, your Manchesters, Leeds, Liverpool. These are northern cities. Dinner's at 12 o'clock, tea's at 5 o'clock, no messing around.
"They want identity, they want soul. I'm seeing it with QPR, I'm seeing it with Newcastle. The soul and the identity and the heart is being ripped out of this club.
"It's gone too far in my opinion."
When asked about the price of foreign players compared to homegrown talent, Neville said: "I keep hearing about value for money. When I walk into the supermarket and I see a 3-for-1, the first thing I do is wonder what's wrong with it. The next thing I do is check the sell-by-date.
"It sounds like a good deal, an easy, quick-fix, but for me I don't get it at this moment in time.
"The examples are staring you in the face. Borussia Dortmund, Bayern Munich, Juventus with Italian players, Barcelona, Manchester United. The examples of these clubs have got this core of players from their own country.
"We've benefited hugely from foreign players in this country, Newcastle more than anywhere, with the likes of Albert, Ginola, Asprilla, they set the Premier League alight for years.
"But it's a tipping point and it's gone too far.
"At the weekend a club called Crewe Alexandra played 11 Academy players. Why did they do that? They made a big statement and it should have been over the back pages of every single newspaper for what they did at the weekend."