The archbishop of Canterbury has waded into the row over Israeli plans to build hundreds of homes on occupied territory, saying the proposals left him feeling "baffled and angry".

Rowan Williams told an audience in London that although he believed the Israeli state had a right to exist, he had yet to hear a legal defence of settlement construction. All settlements on occupied territory are illegal under international law.

At the event, sponsored by the Jewish Chronicle to celebrate the 250th anniversary of the Board of Deputies, he said: "The state of Israel is a legitimate state. It has a right to exist and right to defend itself. The very fact that Israel makes so much of its status as a democratic state leaves me baffled and sometimes angry at what seems like collusion with unauthorised parties. I want to hear a legal defence of settlements and I am yet to hear it."

The "unauthorised parties" he referred to were settler groups, religious nationalists who believe they have a right to live in the ancient biblical area of Israel. The archbishop is said to be concerned at the way people are "acting on their own behalf and beyond the law".

His reflections come during a week when Israel announced two proposals for hundreds of housing units – one for 1,600 homes in Ramat Shlomo and another for 112 flats in Beitar Illit – despite promising a 10-month partial suspension of settlement building in the West Bank, though not in East Jerusalem, which it annexed in 1967 and regards as its territory.

Ramat Shlomo, built 15 years ago, is on land captured in the West Bank in 1967 and annexed to Israel in a move not recognised by the international community. It also said Beitar Illit, an ultra-Orthodox settlement near Bethlehem, was approved before the moratorium being declared.

Williams said: "Unless there is a way of representing the settlements as legitimate self-defence I remain very disturbed about that, along with many."

It is not the first time he has spoken out on the Middle East. In comments made during a 2007 interview for a Muslim lifestyle magazine, Emel, he attacked US policy in the region and said the Bush administration had assumed all Iraq needed was a "quick burst of violent action".