Ninety Labour MPs and peers have criticised the decision to readmit MP Chris Williamson back into the party.
They expressed “hurt and anger” at the ruling and said Jeremy Corbyn must withdraw the party whip.
The Derby North MP was suspended after saying Labour had “given too much ground” in the face of criticism over anti-Semitism in the party.
Eleven frontbenchers, including deputy leader Tom Watson, are among those criticising the ruling.
A statement signed by 90 Labour parliamentarians, says: “Given that the Labour Party is being investigated by the EHRC [Equality and Human Rights Commission} over allegations of institutional anti-Semitism, this case is particularly important.
“It is clear to us that the Labour Party’s disciplinary process remains mired by the appearance of political interference. This must stop. We need a truly independent process.”
It adds: “We call on Jeremy Corbyn to show leadership by asking for this inappropriate, offensive and reputationally damaging decision to be overturned and reviewed.
“Ultimately, it is for Jeremy Corbyn to decide whether Chris Williamson retains the Labour whip. He must remove it immediately if we are to stand any hope of persuading anyone that the Labour Party is taking anti-Semitism seriously.”
Mr Williamson was suspended in February following remarks he made about the party’s handling of anti-Semitism and was readmitted on Wednesday.
His suspension followed the publication of footage by the Yorkshire Post, showing Mr Williamson telling activists Labour had been “too apologetic” over anti-Semitism and was being “demonised as a racist, bigoted party”.
He later said he “deeply” regretted the remarks and did not want anyone to think he was “minimising the cancer of anti-Semitism”.
After his readmission he said he was pleased to have been allowed back into the party and had been “inundated with overwhelming messages of support from all over the country”.
He told BBC Radio Derby: “Anybody who knows me, who knows my record, knows I’m someone who has stood up against bigotry throughout my political life and indeed beforehand.”
A Labour source said Mr Williamson had been found to have breached party rules and given a formal sanction.
They said he could face further action if he repeats any similar behaviour.
Labour is being formally investigated by the Equality and Human Rights Commission over allegations of anti-Semitism.
The watchdog told the party in March it had received a number of complaints and was considering its next steps.
But it confirmed in May it would be launching a probe into whether Labour had “unlawfully discriminated against, harassed or victimised people because they are Jewish”.
Labour anti-Semitism row: MPs attack decision on Chris Williamson}