Mr Thackeray's party, the Shiv Sena, in alliance with the Hindu nationalist Bharatiya Janata Party, now controls Maharashtra state, whose capital is Bombay. A self-proclaimed admirer of Hitler, Mr Thackeray has vowed to "eliminate" Bangladeshis who have swarmed to Bombay to escape poverty, unless they leave in the next 15 days.
Many of the city's two million Muslims expressed fears yesterday that in the crackdown against the illegal Bangladeshis, many Indian Muslims might also be persecuted. Mr Rao condemned Mr Thackeray's incendiary statements, saying: "Every Indian has a right to stay wherever he wants."
Since Mr Thackeray's swept to power in Bombay last month, tension between the city's Hindus and Muslims has been at its worst since the January 1993 riots which left more than 400 dead. Mr Thackeray claimed that he had received many death threats from Muslims and warned that "if I am attacked, the entire community of Muslims will be wiped out".
The home minister, Rajesh Pilot, said that the government would take "appropriate action under the constitution" against Mr Thackeray for his provocative statements and added that he might face jail. Privately, the ruling Congress Party is reluctant to risk any clash with Mr Thackeray for fear of him unleashing his often violent Shiv Sena militants in Bombay.
In parliament, left-wing parties and the ruling Congress joined in a rare display of unity against Mr Thackeray and his right-wing Hindu allies.
Sarla Maheswari, a Communist MP, said that Mr Thackeray's remarks "smacked of fascism".
He added: "There is a lot of fear in the Muslim areas."