Shadow chancellor John McDonnell said he could “weep” over Labour’s dire reputation in the Jewish community but refused to call for Ken Livingstone to be kicked out over his claims about Adolf Hitler’s links to Zionism.
London’s former mayor should have apologised immediately over the offensive remarks and must show “honest contrition”, he said.
But Mr McDonnell repeatedly refused to call for his old ally to be expelled from the party.
A disciplinary panel’s decision to only suspend Mr Livingstone provoked uproar among MPs and senior members of the shadow cabinet.
Mr McDonnell told Sky News’ Ridge On Sunday: “It was their party. It’s a tragedy, an absolute tragedy. I could weep about it, I really could.
“The other (part of the) tragedy is we are now led by someone who is possibly one of the foremost anti-racist campaigners that we have had in our political history.”
Labour is launching a new probe into Mr Livingstone’s behaviour in the wake of fresh comments he made as his case was heard by party officials.
The defiant Labour veteran insisted he had simply been telling the truth and warned he would take legal action against the party if it tried to exclude him.
Shadow foreign secretary Emily Thornberry said Mr Livingstone’s comments had been “a complete insult”.
She told BBC One’s Andrew Marr Show: “I was surprised to say the least, frankly I was bewildered he wasn’t suspended from the Labour party as a result.
“And then I was surprised that he wasn’t thrown out. I think that he should have been.”