Baroness Tonge has resigned from the Liberal Democrats following anti-Israel comments she made at an Israel Apartheid Week event.
She rejected an ultimatum from party leader Nick Clegg to apologise for the remarks and will no longer sit on the party's benches in the House of Lords.
Confirming Baroness Tonge had left the Lib Dems, Mr Clegg said: "These remarks were wrong and offensive and do not reflect the values of the Liberal Democrats.
"I asked Baroness Tonge to withdraw her remarks and apologise for the offense she has caused. She has refused to do so and will now be leaving the party.
"The Liberal Democrats have a proud record of campaigning for the rights of Palestinians, and that will continue, but we are crystal clear in our support for a two state solution."
The comments I made have been taken completely out of context. Baroness Tonge
Baroness Tonge said: "The comments I made have been taken completely out of context.
"They followed a very ill-tempered meeting in which Zionist campaigners attempted continually to disrupt proceedings. They mouthed obscenities at the panelists, to the extent that university security attempted to remove them from the premises."
Her resignation follows criticism of her comments from across the political spectrum. Labour leader Ed Miliband and the Board of Deputies of British Jews were among those calling for Mr Clegg to take action.
The JC can also reveal police are investigating comments made at the event by former US marine Ken O'Keefe following allegations that he incited racial hatred when comparing Jewish audience members to Nazis.
Baroness Tonge was sitting next to Mr O'Keefe as he screamed at audience members, said Israel "must be destroyed" and claimed Mossad was "directly involved" in the September 11 terror attacks on the United States.
She made no attempt at the time to distance herself from his remarks, and launched her own tirade against Israel which has today been widely condemned from figures across the political spectrum.
Baroness Tonge told the audience at Middlesex University's Free Palestine Society that Israel would "not last forever" and would "lose support and then they will reap what they have sown".
She said Americans would tell "the Israel lobby in the USA: enough is enough".