Civil rights campaigners have accused the Government of forgetting the lessons of the Macpherson Inquiry as draft guidance for police said a person's race could be used as a basis for officers to carry out a stop and search.
Liberty said the draft proposal "flies in the face of recommendations in Sir William Macpherson's Inquiry" into the 1993 murder of black teenager Stephen Lawrence.
The guideline would also mean police no longer have to record when a person is stopped by an officer and asked to account for their presence or actions.
The requirement was recommended by the 1999 inquiry in a bid to improve accountability and safeguard minority ethnic communities from institutionalised racism.
Under Section 60 of the Criminal Justice and Public Order Act 1994, a police officer can stop and search anyone without suspicion in a designated area for a 24-hour period.
Isabella Sankey, Liberty's policy director, said: "Stopping and searching individuals without suspicion is divisive enough without telling police they can directly discriminate on the grounds of race. Significant progress has been made since the Lawrence Inquiry but the Home Office's planned changes will set the clock back and jeopardise race relations in the UK."
The Macpherson Inquiry severely criticised police in 1999 for their handling of the murder of Mr Lawrence, who was killed in an unprovoked racist knife attack by a gang of white youths in April 1993.
The proposed changes to the Police and Criminal Evidence Act (Pace) guidance, which governs the exercise of police powers, said that while officers must take particular care not to discriminate on the grounds of race, it may be appropriate "in response to a specific threat or incident".
It read: "Officers must also take particular care not to discriminate against members of minority ethnic groups in exercising the powers. There may be circumstances, however, where it is appropriate for officers to take account of an individual's ethnic origin in selecting persons and vehicles to be stopped in response to a specific threat or incident, but this must not be the sole reason for the stop."
A Home Office spokesman said: "The proposed new guidelines make clear that ethnicity may not be used as the sole basis for stopping and searching anyone under section 60. The previous guidance does not place any explicit restrictions on who may be stopped and this change is intended to protect civil liberties."