Tom Watson has insisted Max Mosley supports the “weak against the strong”, amid calls for him to return “racially tainted” money.
The Labour deputy leader said he would never have given Mr Mosley “the time of day” if he believed the former Formula One boss held views contained in a document published more than 50 years ago.
It has been disclosed Mr Mosley published a campaign leaflet linking non-white immigrants with diseases such as tuberculosis, VD and leprosy.
The pamphlet, supporting a candidate for his father Sir Oswald Mosley’s Union Movement in a 1961 by-election, was unearthed by the Daily Mail in historical archives in Manchester.
Labour responded by saying neither Mr Watson nor the party would take any further payments from him.
But Culture Secretary Matt Hancock suggested he believed Mr Watson would be “thinking very hard” about returning the money after Tory colleague Simon Hoare raised a general question on whether MPs should “hand back racially tainted money”.
Mr Mosley has said he does not “recognise” the leaflet and it is “not something I would have ever wished to be associated with”.
He has campaigned for tighter press regulation and has donated funds to regulator Impress.
Speaking in the Commons, Mr Watson told MPs: “If I thought for one moment he held those views contained in that leaflet of 57 years ago, I would not have given him the time of day.
“He is a man, though, who in the face of great family tragedy and overwhelming media intimidation, chose to use his limited resources to support the weak against the strong.”
North Dorset MP Mr Hoare later said: “While we are right to celebrate a free press within our democracy, are we not also right to demand a responsible press as well, because with freedom comes responsibility.
“On the subject of responsibility, could I invite (Mr Hancock) to maybe share his thoughts as to whether … in order to ensure a free and open democracy, the responsible thing to do for honourable members is to hand back racially tainted money?”
Mr Hancock replied: “On the second point, he raises a very important question that I’m sure the honourable gentleman opposite will be thinking very hard about now that he’s admitted that it was a mistake to take this money.”
The campaign pamphlet came to light as Mr Mosley pursues an effort to prevent newspapers from referring to the sex party reported in the News of the World which prompted a court case in 2008.
He has campaigned for tighter press regulation since the now-defunct Sunday tabloid wrongly reported the party was “Nazi-themed”.
In a statement released on Wednesday evening, Mr Mosley said: “Now that I’ve seen copies of this leaflet, I still do not recognise it.
“It is not something I would have ever wished to be associated with.
“It is offensive and divisive. By contrast, I campaigned to stamp out racism in motorsport.
“The Daily Mail’s attack over my work for my father’s party, which ended in 1963, is plainly in response to my recent letter of claim.”
Mr Mosley added that “like many people, my views have changed over the last half century”.