"In fact the Europeans have practised ethnic cleansing against the Jews in Europe by expelling the Jews from all the European states," the official IRNA news agency quoted him as saying.
"They have shot two targets with a single bullet - they have built a Jewish camp among the Islamic nations and got rid of the Jews from the whole of Europe.
"The Zionist regime is a part of Europe, which was broken away from Europe, and is anti-Islamic in nature."
The president suggested that the international outrage caused by previous comments, in which he said that Holocaust denial was a matter for "scientific debate", was because he had touched a raw nerve.
He asked why should the Palestinians who played no part in the killing of Jews in the second world war be forced to make way for a Jewish state. "Why don't the Europeans who perpetrated the crime pay the price themselves?" he said.
Judaism vs Zionism
The president rejected suggestions that his comments were anti-Semitic, and said that Iran made a distinction between Judaism and Zionism.
Ahmadinejad, an ultra-conservative whose election victory in June took many observers by surprise, has previously labelled the Jewish state as a "tumour" that should be "wiped off the map" or moved out of the Middle East, perhaps to Alaska.
His comments have already resulted in two rebukes from the UN Security Council, and Kofi Annan, the UN secretary-general, put off a planned visit to Iran in October.