Speaking in his role as a lawmaker in the House of Lords, which is scrutinizing the proposals, Welby urged Prime Minister Rishi Sunak's Conservative government to reverse course.
If passed, the draft law would outlaw asylum claims by all arrivals via the Channel and other "illegal" routes, and transfer them to "safe" third countries, such as Rwanda.
It was proposed in response to years of growing numbers of dangerous cross-Channel journeys from northern France in small boats.
But it has prompted heavy criticism from international organizations, refugee advocates and U.K. opposition parties.
"It risks great damage to the U.K.'s interests and reputation at home and abroad, let alone the interests of those in need of protection, or the nations who together face this challenge," Welby told other peers during a debate.
"I urge the government to reconsider much of the bill, which fails to live up to our history, our moral responsibility, and our political and international interests," he added, calling it "isolationist."
Welby, speaking just days after overseeing King Charles III's coronation in his role as Anglican leader, has previously slammed the plans, accusing ministers of "harmful rhetoric" and "cruelty" in their asylum policies.
Asked about his comments, Sunak's spokesman told reporters: "There is nothing compassionate about allowing vulnerable people to die in the Channel".
The British leader has vowed to "stop the boats" used by tens of thousands of migrants each year to make the treacherous trip to Britain's shores from northern Europe.
More than 45,000 arrived last year, continuing a trend that took off in 2018.
Sunak's predecessor Boris Johnson agreed the deal with Rwanda last year to relocate people arriving in the U.K. illegally to the central African country, but the scheme has been mired in legal battles and is yet to get underway.
The Council of Europe and several United Nations bodies have condemned the plans, arguing they are "incompatible" with Britain's international obligations.
London, which must abide by the European Convention on Human Rights overseen by the ECHR, insists its new law does comply with global refugee laws.
Writing in The Times newspaper Wednesday, hardline Interior Minister Suella Braverman defended the "robust measures" and suggested the public is on side.
"We urge the House of Lords to look at the Illegal Migration Bill carefully, remember it is designed to meet the will of the British people in a humane and fair way, and back the bill," she wrote, in a joint article with Justice Secretary Alex Chalk.
But veteran Labor peer Alf Dubs, who arrived in Britain in 1938 as one of thousands of Jewish refugee children rescued from the Nazis, joined Welby in voicing concerns about it.
"There are so many ways in which our refugee system is a mess, but yet the bill is tackling virtually none of those," he told parliament.