Ukip MEP Bill Etheridge has withdrawn his leadership bid, urging "libertarian" candidates to unite against hard-liners using the party "as a vehicle for the views of the EDL and the BNP".
Mr Etheridge claimed the front-runners to lead Ukip, Sharia Watch director Ann Marie Waters and London Assembly member Peter Whittle, were threatening to take the party in a "very dark" direction.
In a statement to party members and the media, Mr Etheridge, a West Midlands MEP since 2014, also called on Nigel Farage to make clear which leadership candidate had his support.
Pledging to quit Ukip and serve as an independent MEP if Ms Waters or Mr Whittle succeeds Paul Nuttall, Mr Etheridge said elements within the party were "obsessed" with Islam.
He told a press conference at Wolves' Molineux stadium that Ukip's leadership contest now had "more runners than the Grand National" - offering a better chance of success to fringe candidates.
In a direct appeal to Mr Farage, Mr Etheridge said he should state who he wanted to see heading the party.
Nigel is the man who more than anyone made this party grow. But Nigel is silent. He needs to speak - the members need to know what Nigel thinks, we need to hear his voice.
He also offered to act as a broker to help reduce the number of candidates opposing Mr Whittle and Ms Waters.
We actually now have a group within the party who believe... we should take on strongly a single issue - and that single issue is Islam.
He also warned that party finances were "in a spot" and that the forthcoming leadership race was "either the end or the beginning" for Ukip,
We have always in this party stood against any form of racism, any form of discrimination. That's who we are.
Mr Etheridge urged libertarian leadership hopefuls to contact him, saying there "good people" vying for the leadership role.
They know where I am. If they want me to come and sit in the middle and chair a meeting, quietly, behind closed doors, I will do it.