Mr Ahmadinejad also said that the state of Israel should be moved away from the Muslim world.
"I think all responsible leaders in the international community recognise how outrageous such comments are," White House spokesman Scott McClellan said.
US President George W. Bush called Iran "a real threat". He repeated his charge from 2002 that Iran is part of an "axis of evil," and urged Tehran to prove it does not seek nuclear weapons.
There was also condemnation from Europe, which has taken the lead in efforts to negotiate an accord with Iran over its nuclear program.
"The comments are wholly unacceptable and we condemn them unreservedly. They have no place in civilised political debate," said Britain's Minister for Europe, Douglas Alexander, whose country holds the rotating EU presidency.
With Germany, France and Britain tentatively due to hold talks with Iran over its disputed nuclear activities, US and European officials said Mr Ahmadinejad had reinforced suspicions about Tehran's nuclear ambitions.
"His comments and statements only underscore why it is so important that the international community continue to work together to keep Iran from developing nuclear weapons," Mr McClellan said.
German Foreign Minister Frank-Walter Steinmeier said the Iranian president's remarks were "shocking and totally unacceptable".
Mr Steinmeier said that, in the absence of the Iranian ambassador, the government on Monday had called in Iran's charge d'affaires in Germany to signal its disapproval of an anti-Jewish outburst by the president last week.
In October, President Ahmadinejad said Israel "must be wiped off the map" and last week he described the country as a "tumour" and said it should be moved to Germany or Austria.
On Wednesday, he said: "They have invented a myth that Jews were massacred and place this above God, religions and the prophets."
The president of the Central Council of Jews in Germany, Paul Spiegel, called Mr Ahmadinejad's speech "repulsive".
"I lost my sister and several other relatives in the Holocaust. Words fail one when one hears such unbearable utterances," he told the Tageszeitung newspaper.
The French government said Mr Ahmadinejad's "declarations did not contribute to establishing a climate of confidence between Iran and the international community."
Austrian President Heinz Fischer said President Ahmadinejad's verbal attacks against Jews and Israel were "unacceptable".
In Jerusalem, Prime Minister Ariel Sharon's spokesman said Mr Ahmadinejad's "perverse vision" should make clear to the world that the Iranian regime posed a dangerous threat.
"We hope that these extremist declarations will make the world wake up to the nature of this regime -- especially the fact that Iran's nuclear program and its support of international terrorism, represents not only a danger for Israel but for the entire Western civilisation," Mr Sharon's spokesman Raanan Gissin told news agency AFP.
He vowed that Israel would defend itself and would not allow for a second genocide of Jews.
In the US Senate, Democrat John Kerry blasted the remarks as "reprehensible," adding that the world must not remain silent as it did during the rise of Nazism in 1930s Germany.
It is "long overdue to stand up to the worlds leading state sponsor of terrorism and lead an unrelenting international effort to make Iran cease its support of terrorism," he said.
Commentators in and outside of Iran have said the Islamic Republic appears on a collision course with Western governments following President Ahmadinejad's remarks.