Labour MPs have expressed fury at Chris Williamson’s re-admission to the party after having been suspended for suggesting the party had been “too apologetic” about antisemitism.

Labour’s Ruth Smeeth called the decision “disgusting” and said colleagues did not want Williamson in the party. “I am horrified,” she said on Wednesday. “It says a great deal about how seriously we’re taking anti-Jewish hate.”

She added that she was “not comfortable being in the same room” as the Derby North MP.

The Guardian understands party investigators recommended the Derby North MP face a sterner sanction, but were overruled by a panel from the party’s national executive committee, made up of the MPs Keith Vaz and George Howarth and constituency rep Huda Elmi.

Sources close to the NEC said Vaz and Elmi had argued for Williamson’s re-admission, with a formal warning, on the basis a snap general election was highly likely.

Williamson is now likely to face a deselection battle in his constituency, but will be eligible to stand again for the party in any election.

A Labour source said that a party panel, advised by an independent barrister, had found Williamson breached party rules and issued a formal sanction, though chose not to refer him to Labour’s highest disciplinary body, the national constitutional committee, which considers possible expulsions.

“He could face further, more severe, action if he repeats any similar comments or behaviour,” a party source said.

Play Video 0:41 Chris Williamson says Labour has been 'too apologetic' about antisemitism – video

Labour MPs including Stella Creasy, Jess Phillips and Wes Streeting, all expressed disgust at the decision. Phillips said she was “disgusted but not surprised anymore” and suggested she would have been expelled had she said similar things to Williamson.

Creasy said it was “the best example yet of why we need an independent process for antisemitism and sexual harassment complaints.

The Jewish Labour Movement also criticised the decision and said it showed the “moral turpitude” the party was currently in. Chair Mike Katz said: “How dare the Labour party deny it is institutionally racist against Jews when it decides to take no action against Chris Williamson?

“It seems the decision to let him off is because he represents a marginal seat and there might be a snap election. It’s good to know that a party of anti-racists, led by an avowed anti-racist decides it’s OK to ignore anti-Jewish racism if there’s a vote to be won.”

A NEC source said it was a “red herring” to blame the decision on the party leadership. “Party staff recommended that he be referred to the NCC, Keith Vaz who is a longtime operator on the Labour right opposed it,” the source said.

“The silver lining is that while suspended from the party Chris Williamson couldn’t face a trigger ballot. Now he can be and I strongly hope he is deselected.”

In footage first revealed by the Yorkshire Post, Williamson was cheered by activists in Sheffield as he said: “I’ve got to say, I think our party’s response has been partly responsible … Because, in my opinion, we’ve backed off far too much, we’ve given too much ground, we’ve been too apologetic.”

Labour splits exposed as MP is suspended over antisemitism remarks Read more

The MP, who is a close ally of Jeremy Corbyn, later issued an apology saying: “I deeply regret, and apologise for, my recent choice of words when speaking about how the Labour party has responded to the ongoing fight against antisemitism inside of our party. I was trying to stress how much the party has done to tackle antisemitism.”

A party spokesman said: “The Labour party takes all complaints extremely seriously, which are investigated in line with our rules and procedures. We can’t comment on individual cases.”

Williamson is likely to face a selection battle in his own constituency after a bitter row with the trade union Unite after he backed plans to reduce trade union influence in MP selections. He has vowed to fight any attempt to remove him as a candidate but said he welcomed open selection.