Leung will step down in July after a four-year term marked by anti-Beijing rallies as fears grow that Chinese authorities are squeezing Hong Kong's freedoms.
Frustration at lack of political reform has sparked movements seeking self-determination or even independence for the semi-autonomous city, angering Chinese authorities.
As he struggled to start his speech due to heckling, some pro-democracy lawmakers held up signs depicting Leung as a monkey and calling him a "liar".
"As we benefit from the opportunities brought by the development of our country and the national policies in our favour, we must clearly recognise that Hong Kong is an inalienable part of our country," Leung said in the annual address.
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Residents must "safeguard national sovereignty, security and territorial integrity", said Leung, who did not mention any plans for kickstarting democratic reform, after a controversial Beijing-backed package was shelved following massive protests in 2014.
Amnesty International Hong Kong last week said human rights were at their worst since the city was handed back to China by Britain in 1997, in the wake of the disappearance of five city booksellers known for publishing salacious titles about Chinese leaders, and interference by Beijing in a range of areas, from media to education.
However, Leung said the city still enjoyed a high degree of autonomy and pledged his government would "uphold Hong Kong's core values, including human rights, liberty, democracy, the rule of law and integrity".
In an address which lasted more than two hours and mainly focused on the economy and domestic issues, Leung framed the city's economic strategy within Beijing's latest five-year plan and its One Belt, One Road initiative, which calls for constructing vast rail and infrastructure links connecting Chinese exporters to markets across Eurasia.