Veteran Labour MP Dame Margaret Hodge has described a decision to lift Chris Williamson’s suspension from the party as “appalling” and “outrageous”.
Derby North MP Mr Williamson was suspended in February following his comments that the party had been “too apologetic” in response to criticism over its handling of anti-Semitism allegations.
He was issued with a formal warning but allowed back into the party after a hearing of a National Executive Committee (NEC) anti-Semitism panel.
Speaking on BBC’s Newsnight, Dame Margaret, who is Jewish, said: “It is appalling, outrageous and unacceptable that he should be allowed back into the party.
“It’s a cynical move done on the day that we all got our forms to say ‘did we want to become Labour MPs again’, and having him suspended meant that he could not become a Labour MP.”
The Barking MP added that Labour leader Jeremy Corbyn could have the decision overturned.
“He could tomorrow get Chris Williamson suspended, he could tomorrow actually overturn the finding of this panel and he could get Chris Williamson expelled,” she said.
Mr Williamson was suspended after video footage showed him telling a meeting of the grassroots Momentum group that Labour’s reaction to anti-Semitism allegations had led to the party being “demonised”.
He was also filmed saying he had celebrated the resignation of MP Joan Ryan, who quit Labour in protest over the handling of anti-Semitism and bullying complaints.
A Labour source said: “An NEC panel, advised by an independent barrister, found Chris Williamson had breached the party’s rules and gave him a formal sanction.
“He could face further, more severe, action if he repeats any similar comments or behaviour.”
Labour MP Stella Creasy also suggested the timing of the case could be linked to the party’s efforts to get candidates in place for the next election.
MPs have been given until July 8 to say if they wish to seek re-selection in their seats.
Ms Creasy said: “The decision to let Chris Williamson back into party in time for him to stand again as a Labour candidate is best example yet of why we need an independent process for anti-Semitism and sexual harassment complaints and not mates’ rates.”
Amanda Bowman, vice president of the Board of Deputies of British Jews, said: “This is an utter disgrace.”
Gideon Falter, chief executive of Campaign Against Antisemitism, said: “The decision to reinstate him shows that the Labour Party’s leadership holds British Jews in contempt and demonstrates that the Equality and Human Rights Commission was right to act on our referral and open a full statutory investigation into Labour’s anti-Semitism crisis.”
Anti-racism campaign group Hope Not Hate was also critical, calling the lifting of the suspension “wrong and alarming”.
Tory leadership hopeful Boris Johnson said it was “shameful that Labour have reinstated this key Corbyn ally back into their party after his appalling remarks”.
“We must never allow these apologists for anti-Semitism anywhere near government,” he said.
A Labour Party spokesman said: “The Labour Party takes all complaints extremely seriously, which are investigated in line with our rules and procedures.
“We can’t comment on individual cases.”