Nigel Farage has joined forces in the European parliament with a Swedish party that was founded by white supremacists, including a former member of the Waffen SS. In an apparent change of tack, after he pledged to avoid parties on the far right, the Ukip leader also invited a French MEP who was elected for Marine Le Pen's Front National last month to join his pan-European group in the parliament.

Ukip insisted last night that Farage had not broken his word because the two Sweden Democrat MEPs, Kristina Winberg and Peter Lundgren, were obliged to write a letter to the Ukip leader distancing themselves from their party's past.

Joëlle Bergeron, who left the FN two days after the European elections last month, also wrote to Emmanuel Bordez, the secretary general of Farage's Europe of Freedom and Democracy group, distancing herself from Le Pen's party.

But the Liberal Democrats last night attacked Farage's decision to allow such controversial figures into his group, which now has MEPs from seven EU member states – the minimum to form a group. A senior Lib Dem source said: "Regardless of your views on Europe, it is hard to see how British MEPs hanging around the European parliament with the dregs of the far right is going to be of any benefit to British jobs and growth."

Farage came under fire as he spoke of his pride in forming his new group. Winberg and Lundgren's Sweden Democrats party was founded in 1988 as a white supremacist group whose members wore Nazi uniforms to meetings. The party adopted a more moderate facade in 1995 when a new leader, Mikael Jansson, introduced a ban on uniforms and the party announced that its policies would be based on the universal declaration of human rights.

Jimmie Åkesson, the current leader, stepped up the process when he changed the party's logo from a torch to a blue daisy. But three of the party's MPs ran into trouble in 2012 when a video was published which showed them telling the Swedish-Kurdish comedian Soran Ismail that Sweden was "my country, not your country", according to the Daily Telegraph.

Ukip insisted it had ensured that the two Sweden Democrats MEPs had distanced themselves from their party's extremist past. In a statement under the heading "We acknowledge and learn from our mistakes", the party said: "The worst of these mistakes was that the party didn't distance itself from radical youths with subcultural looks and that these were allowed to participate in some of the party demonstrations." One of the party's founders, Gustaf Ekström, had been a member of the Waffen SS.

A source in the EFD group said: "They are a party that has changed dramatically over time. They have acknowledged their mistakes. We have met the two MEPs, they seem two very decent working-class people. They are nice people, they are not extreme. They are Swedish patriots who want the best for their country."

But the Sweden Democrats have been highly critical of the country's immigration policy. Its leader told the Daily Telegraph last month: "Malmö is a good example of an irresponsible immigration policy. It is an extremely segregated city. With the economy under pressure, we should raise our voice against the state's irresponsible immigration policy. Everyone who thinks immigration is a good thing should take a good look at this city."

Bergeron, the former FN MEP who joined the Ukip group, said she had been asked to stand down from the European parliament after she spoke in favour of giving immigrants the right to vote in local elections. Bergeron refused to resign which means that she now sits as an independent.

The Ukip group now has 48 MEPs from seven EU states. Ukip, with 24 MEPs, is the largest party followed by Beppe Grillo's 5 Star Movement with 17 MEPs.

Farage, the president of the EFD, said: "I am very proud to have formed this group with other MEPs and we undertake to be the peoples' voice. We will be at the forefront working for the restoration of freedom, national democracy and prosperity across Europe.

"I am excited about working together with other delegations to be effective in exerting as much change as possible in Brussels while labouring at home to alert people to the harm that EU regulation does to the lives of ordinary people. Expect us to fight the good fight to take back control of our countries' destinies. We have struggled against much political opposition to form this group and I am sure it will operate very well. Now it is formed I expect other delegations to join soon."

Farage has struggled to re-establish his group after the Danish People's party defected to the European Conservatives and Reformists group established by the Tories. The Italian Northern League defected to the new group established by Le Pen.

The pro-reform Open Europe thinktank said the Ukip group will claim €3.8m (£3m) a year. Vincenzo Scarpetta, a political analyst, Open Europe, said: "With millions of subsidies on offer, the European parliament's rules create strong incentives for parties to form groups, even when these parties are not natural bedfellows. It remains to be seen whether this alliance of parties that look so different from each other – Ukip, which wants to quit the EU, and Italy's Five-Star Movement, which does not want to leave the EU and supports a financial transaction tax – can coexist in the longer term."