Ahmadinejad has not yet commented on the comments by Esfandiar Rahim Mashaie, one of his closest allies and the father of his daughter-in-law.
But the president's interview with Turkey's NTV and CNN-Turk television channels took a more conventional line.
"Our position is clear on this issue. A referendum should take place in Palestine. If they withdraw from invaded lands it would be a good step," he said.
"If there is free referendum, Palestinians would destroy Israel.
"Israel is acting dishonestly, Palestinians are under dictatorship, oppression for the last 60 years," Ahmadinejad said.
More than 200 Iranian MPs on Wednesday backed a strongly worded statement calling on Ahmadinejad to take action against Mashaie.
"Condemning this regretful position, we deputies ask Dr Ahmadinejad to deal with him seriously," the statement said.
"Mr Mashaie probably does not know that those he calls people [Israelis] are the same occupiers of houses of millions of Palestinians," the MPs said in the statement.
"These people have created the illegitimate Zionist regime ... we do not recognise a land called Israel let alone recognise its people."
Israel has voiced misgivings over Ahmadinejad's visit to Turkey saying it was "not the appropriate time" for Turkey to host Ahmadinejad.
"It is not a good idea to give legitimacy" to a leader who has called for the destruction of Israel and denies the Holocaust, an Israeli diplomat based in Ankara said.