During a cabinet meeting in Tehran, Rouhani said "Islam is the religion of goodness and peace".
"Unfortunately certain people around the world claim that Muslims should be barred from entry in order to fight terrorism," he said.
"These are particularly bizarre remarks because they (the United States) themselves created terrorism... With their money and their men and plant the seeds of terrorism in the region."
On Monday, Republican frontrunner Trump called for a "total and complete shutdown" of Muslims entering the United States, saying the ban should remain in place "until our country's representatives can figure out what the hell is going on."