The decision by party leaders in Tower Hamlets could prove politically explosive in the run-up to council elections on 5 May.
The Liberal Democrats and Labour are gearing up for a battle against feared rising support for the British National Party in the depressed London borough.
The BNP's Derek Beackon snatched victory from Labour in last autumn's by-election for Millwall, Isle of Dogs, and the BNP aims to capture all three seats in the Millwall ward in the forthcoming contests. Under Tower Hamlets' system of devolved power that would give the councillors control of a multi-million pound budget for the neighbourhood.
Both the main parties were blamed for the BNP's by-election success. An inquiry by Lord Lester QC, the Liberal Democrat peer, censured some activists for 'pandering to racism' in election leaflets. Others were criticised for failing to co-operate with the inquiry.
Labour activists, as yet officially unidentified, produced false canvass returns that talked up the chances of a BNP victory, which critics claimed gave the BNP credibility.
Gwyneth Deakins, the local Liberal Democrat chairwoman, was asked last night about the plan to drop Asian candidates. She said: 'We are in the process of finalising candidates. There are a lot of issues. Personal suitability is paramount.'
But she added: 'We have taken the general view that the people we select should reflect the balance of the communities they are going to
In at least four wards, two in Bethnal Green and two in Wapping, candidates chosen at ward level could be changed by the Tower Hamlets party executive. If carried through, the policy could prove to be dynamite in the hands of the Liberal Democrats' opponents.
However, the London regional party last night moved swiftly in an attempt to head off the controversy.
Graham Tope, president of the London region and a co- chairman of the Lester inquiry, said: 'We are discussing with the local party chair how we can conduct new ballots on a one member, one vote basis. The results from such ballots will stand.'
Jack Straw, Labour's environment spokesman, said: 'These are serious allegations. It appears that the Liberal Democrats in Tower Hamlets are continuing to defy Paddy Ashdown and the national party.'
Mr Straw plans to take up the issue with Mr Ashdown personally. But some Labour activists appeared ready to endorse the move as an expression of practical politics yesterday.
One said: 'Candidates should reflect the composition of the ward. Perhaps it would do us a lot of good if we did so.'
It is that kind of sentiment that accounts for much of the opprobrium that has been heaped on the Liberal
Last month Ms Deakins fought to resist an ultimatum to the local party to accept the findings of the Lester inquiry or face suspension. That threat, from the regional party leadership, eventually petered out.
Last night Ms Deakins angrily dismissed suggestions that matching candidates to the racial composition of an area could be construed as a further example of 'pandering to racism' which would be exploited by party critics.
She said: 'Every single thing we do is exploited by our critics. The best we can do is to try to win elections for the people of Tower Hamlets. We want to defeat the BNP, and defeat everybody else.'
Paddy Ashdown, the party leader, last month delivered a strong warning to the local party to make it a priority to stamp out the BNP where it first gained a toehold, in the Isle of Dogs.
Tower Hamlets was recently judged the eighth best education authority in the country by Agency 26, a group of academics and researchers. It has also earned praise from Mr Ashdown for delivering services and value for money, tackling waste and improving housing. But he is known to remain concerned about the lingering race factor.
A shortage of housing is the root cause of campaigning tactics that have brought the Liberal Democrats and Labour into disrepute and caused deep divisions within both local parties. The issue has been heavily exploited by the BNP.