Sir Keir Starmer has suspended Jeremy Corbyn after an inquiry found the party responsible for “unlawful” harassment and discrimination when he was leader.
The UK’s human rights watchdog, in a report on Labour anti-Semitism, also said Mr Corbyn’s office had “politically interfered” in the complaints process.
Mr Corbyn said the scale of the problem had been “dramatically overstated”.
Labour said it was suspending him for a “failure to retract” his remarks.
Mr Corbyn’s successor as leader, Sir Keir Starmer, said the publication the Equality and Human Rights Commission’s (EHRC) report had brought “a day of shame” for the party.
He promised to implement its recommendations “as soon as possible in the New Year” and to change Labour’s culture.
The EHRC report found the party responsible for three breaches of the Equality Act:
In a statement, it said: “The equality body’s analysis points to a culture within the party which, at best, did not do enough to prevent anti-Semitism and, at worst, could be seen to accept it.”
The investigation found evidence of 23 instances of “inappropriate involvement” by Mr Corbyn’s office, included staff influencing decisions on suspensions or whether to investigate a claim.
One incident reportedly saw the party leader’s staff advising a complaint Mr Corbyn himself – for allegedly supporting an anti-Semitic mural – should be dismissed.
Some decisions, said the watchdog, had been made because of “likely press interest rather than any formal criteria”, and the party “adopted a practice of political interference”.
The EHRC said the party’s complaints process was inconsistent and lacking in transparency”.
The report also said the party was responsible for two cases of unlawful harassment, where anti-Semitic tropes were used and complaints were branded fake or smears.
It named former Mayor of London, Ken Livingstone, and a local councillor, Pam Bromley, but said these were “only the tip of the iceberg”, and a further 18 borderline cases were found.
Mr Livingstone later released a statement, he was “deeply hurt” by the accusations and “fully rejects” them, calling himself a “life-long anti-racist”.
Responding to the watchdog’s report, Mr Corbyn said he was “always determined to eliminate all forms of racism” and “regretted it took longer to deliver that change than it should”.
But he claimed his team had “acted to speed up, not hinder the process”, and that the scale of anti-Semitism in the party had been “dramatically overstated for political reasons”.
But Labour said: “In light of his comments made today and his failure to retract them subsequently, the Labour Party has suspended Jeremy Corbyn pending investigation.
“He has also had the whip removed from the Parliamentary Labour Party.”
Jewish Labour MP Dame Margaret Hodge said: “This is the right decision following Corbyn’s shameful reaction to the EHRC report.
“Labour is finally saying enough is enough, anti-Semitism can never be tolerated in our party. Now we can finally move on.”
Mr Corbyn, an MP since 1983, was Labour’s leader from 2015 until earlier this year – and has been a party member for 55 years.