The hard-right Monday Club was suspended from the Conservative Party last night and told it would only be readmitted if it abandoned campaigning on immigration.
David Davis, the party chairman, announced the tougher than expected move after a tense 80-minute meeting with officers of the organisation.
He ordered the group to review its constitution to include a promise not to "promulgate or discuss policies relating to race". Mr Davis also told it to expel members who champion racist opinions.
Speaking outside Conservative Central Office, he said: "Until we're satisfied with their response, the Monday Club is suspended from any association with the Conservative Party."
He said that if the group was not prepared to amend its rules "to make it unconstitutional for them to promulgate any policies on the question of immigration and race", its suspension would be made permanent.
The showdown came after Viscount Massereene and Ferrand, its president, Lord Sudeley, its chairman, and Denis Walker, and Denis Walker, a member of the executive, were summoned into Central Office.
The order means that the organisation will no longer be able to describe itself as the Conservative Monday Club.
The newly elected Tory leader, Iain Duncan Smith, has been dogged by reports of links between his leadership campaign and far-right groups.
Just six weeks ago, before his election, Mr Duncan Smith described the Monday Club as a "viable organisation with the party and they are, in a sense what the party is about".
However, in a swift about-turn, three Conservative MPs, Andrew Hunter, Andrew Rosindell and Angela Watkins, were earlier this month instructed by the new leadership to sever their links with the Monday Club.
Mr Hunter had been its deputy chairman and associate editor of its Right Now! magazine, which described Nelson Mandela as a "terrorist".
The Monday Club, set up 40 years ago to oppose liberal policies within the Tory party, has pursued strong anti-immigration views and as recently as six weeks ago, its website was backing financial assistance for repatriation. The view has since been excised from its list of policies.
Mr Davis told Radio 4's PM programme: "The Monday Club had a number of things on its website which we didn't like and reflected badly .... We want to clear this up once and for all."
The suspension will cause tension in the party, both among grass-roots members and right-wing MPs who fear that Mr Duncan Smith's decision was driven by "political correctness".
However, he was urged by several senior colleagues, including David Willetts and Tim Yeo, to take decisive action as a first step towards reaching out to the political centre-ground.
A Tory spokesman said there were no plans to extend the action to any other right-wing organisation affiliated to the party.
The Labour chairman, Charles Clarke, said: "The reality is that the Tories have lurched further and further to the right in recent years. They will be judged on their record, not their rhetoric."
The move came hours after two MPs resigned from Mr Duncan Smith's frontbench team, just a month after being awarded their posts.
Nick Gibb stood down as a spokesman on Transport, Local Government and the Regions to take up a seat on the Public Accounts Committee, while James Cran gave up his post as deputy to Eric Forth, the shadow Commons Leader.Reuse content