Michael Adebolajo also spoke of his "love" for al Qaeda, telling the Old Bailey he considers members of the terrorist group to be his "brothers".
The 28-year-old was dressed in black and surrounded by five security guards.
Fusilier Rigby's relatives sat feet away as he spoke to the court.
The soldier's mother and widow left the hearing in tears as Adebolajo described how he and co-defendant Michael Adebowale killed him.
He said he could see Drummer Rigby was still moving after he hit him with a car and that after striking at his head, he used another knife to try and decapitate him.
He and Adebowale, 22, are accused of murdering Fusilier Rigby by running him down with a car and then hacking him to death with a meat cleaver and knives near Woolwich Barracks in southeast London on May 22.
Asked directly for his defence to the charge of murder, Adebolajo told the jury: "I am a soldier. I am a soldier of Allah and I understand that some people might not recognise this because we do not wear fatigues and we don't go to the Brecon Beacons to train.
"But we are still soldiers."
He told his counsel David Gottlieb that he considered al Qaeda to be "mujahideen".
He said: "I love them, they're my brothers. I have never met them. I consider them my brothers in Islam."
Adebolajo said he had been raised as a Christian by his parents, but grew frustrated with family visits to church and converted to Islam in his first year at the University of Greenwich.
He said that he held former Prime Minister Tony Blair responsible for the death of one of his childhood friends who had become a soldier but was killed by an explosion in Iraq.
Adebolajo told the court that he took the name Mujahid, meaning fighter, in 2002 or 2003.
He told the court that the 2003 invasion of Iraq - particularly the "shock and awe" bombing campaign launched by the US - had been a big influence on him.
He said: "Growing up I never did think of killing a man. This is not the type of thing that the average child thinks of and I was no different.
"When a soldier joins the Army he perhaps has in his head an understanding that he will kill a man at some stage. When I became a mujahid I was aware that perhaps I might end up killing a soldier."
Adebolajo told the jury that he used to attend demonstrations organised by Anjem Choudary's al Muhajiroun "in the hope it might make a difference".
He said that at one demonstration he was arrested and sent to prison for 51 days for assaulting a police officer.
In 2010 he tried to travel to Somalia but was captured in Kenya and brought back to the UK.
He told the jury that before Fusilier Rigby was killed, he and Adebowale prayed to Allah that they would attack a soldier and not a civilian.
Adebolajo said he handed a letter to an eyewitness in Woolwich to make it clear that the events happened "for one reason and one reason only - that's foreign policy".
He said: "The life of this one soldier might save the lives of many, many people, not just from Muslim lands but from this country."
He described the attack on Fusilier Rigby as a "military operation" and said he asked people at the scene to film him to "make it clear to everybody why the soldier lost his life" and "how this can be avoided in the future".
Adebolajo and Adebowale deny murdering Fusilier Rigby, attempting to murder a police officer and conspiracy to murder.
The trial continues.
There is nothing to deny the murder was on tape. Stupid
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