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Nigel Farage claims UK company bosses should be allowed to recruit on the basis of nationality.
In an interview for a Channel 4 documentary, the Ukip leader also says current race laws should be scrapped - because Britain doesn't have a problem with employment discrimination anymore.
The programme will be broadcast next week, but Mr Farage's remarks have drawn an angry reaction.
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Sadiq Khan, shadow secretary of state for justice, said the Ukip leader's words were the most shocking comments he had ever heard from a mainstream politician.
He suggested Mr Farage wanted to go back to the days where there were 'no blacks' signs on doors.
Video: Ramsgate reacts to Farage's views - Jem Collins reports
Mr Farage is hoping to seize the parliamentary seat of South Thanet in May's general election, which is now held by Tory Laura Sandys.
But he has defended the comments today.
He has since tweeted his remarks have been "wilfully misinterpreted" - and that he was "lauding progress on race relations".
In response, Downing Street's described Mr Farage as "desperate for attention", while Labour has accused him of breathtaking ignorance.