Hassan Nasrallah made the threat in a televised address weeks after an Israeli army official warned that Israel would "have to" target civilian areas in Lebanon in a future confrontation with Hezbollah.
"If they threaten to displace 1.5 million Lebanese, then the Islamic resistance in Lebanon (Hezbollah) threatens to displace millions of Israelis," Nasrallah hit back.
"We are not afraid of your war or of your threats," he said.
"If you assume that we are busy in Syria, then you are wrong -- because this changes nothing in how we deal with our enemy."
For more than two years, Hezbollah has been fighting in Syria on behalf of embattled President Bashar al-Assad.
Speaking to journalists on May 13, the Israeli army official said all villages in south Lebanon are a "military stronghold" where Hezbollah stockpiles rockets capable of hitting his country.
"Each (village) is a military stronghold. Next time we have a war with Hezbollah, we will have to attack each one of these targets, and we hope the population will not be there," he said.
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Hezbollah fought a deadly month-long war with Israel in the summer of 2006 which killed more than 1,200 people in Lebanon, mostly civilians, and some 160 Israelis, most of them soldiers.
Nasrallah also spoke about Hezbollah's ongoing battle with Al-Qaeda's Syrian affiliate, Al-Nusra Front, in the Qalamun region that straddles the Syrian-Lebanese border.
He said Hezbollah had managed to "liberate dozens of square kilometres" of land in the area, pushing back Al-Nusra Front and its allies.
And he vowed that Hezbollah will next turn its sights on the Islamic State group which has seized chunks of Syria and Iraq.
"The next battle is in the... parts (of Qalamun), which are controlled by Daesh," he said, using the Arabic acronym for IS.
"Daesh is on our borders," he said, branding the group as a "threat" to Lebanon's existence.
Hezbollah insists it is fighting in Syria to prevent extremist groups from entering Lebanon.
On Friday, the Syrian army said it had seized numerous villages and strategic hilltops in Qalamun with Hezbollah's help, Syria's state television reported.
The army statement said it was "tightening the noose on terrorist positions" in the area.