Pontins has agreed to change its working practices after disclosure it had a list of Irish surnames it used to screen out bookings for its holiday parks from Gypsies and Travellers.
The Equality and Human Rights Commission (EHRC) investigated after being contacted by a whistleblower.
A spokesperson for Prime Minister Boris Johnson said such discrimination was "completely unacceptable".
Pontins said it had agreed with EHRC change in its working practices.
News of the investigation was first reported by the i news website.
The EHRC said Pontins had an "undesirable guests" list on its intranet of mainly common Irish names to identify people it did not want at its parks.
According to the i, there were 40 names on the list, including Boyle, Keefe, Gallagher, O'Donnell, McGuiness, Murphy, and O'Reilly.
It said staff monitored calls and refused or cancelled bookings made by certain people with an Irish accent or surname, and Pontins' commercial vehicle policy excluded Gypsies and Travellers from its holiday parks.
By declining to provide its services to guests of a certain race or ethnic group, Pontins was "directly discriminating on the basis of race" and breached the 2010 Equality Act, the EHRC said.
Pontins, which is owned by Britannia Jinky Jersey, has six holiday parks across England and Wales.
The EHRC declined to say how long Pontins had the policy in place, but according to the i, the list was used for at least six years.
Alastair Pringle, executive director at EHRC, said: "It is hard not to draw comparisons with an 'undesirable guests' list and the signs displayed in hotel windows fifty years ago, explicitly barring Irish people and Black people.
"Banning people from services based on their race is discrimination and is unlawful. To say that such policies are outdated is an understatement."
"It is right to challenge such practices and any business that believes this is acceptable should think again before they find themselves facing legal action."
A spokesman for Prime Minister Boris Johnson said it is: "Completely unacceptable to discriminate on the basis of race or ethnicity. It is right EHRC and Pontins have investigated this."
The Traveller Movement, a charity that promotes inclusion for Gypsies, Roma and Travellers, said the Pontins policy was "truly shocking" but that it was "not surprised".
"We frequently hear of Gypsies and Travellers being turned away from holiday parks because of their ethnicity," said its chief executive Yvonne MacNamara.
"This happens across the country on a regular basis; it is unlawful and completely unacceptable."
The charity hopes the agreement between the Pontins owner and EHRC leads to better practices, "and we also hope other holiday providers will think twice about enacting similar policies," Ms MacNamara added.
Sarah Mann, director at charity Friends, Families and Travellers, said it was "shameful" for Pontins to have acted in this way.
"Our thanks go to the Pontin's whistle-blower for doing the right thing and to the Equality and Human Rights Commission for using their powers.
"We all have a choice when we see discrimination - to stand by or to challenge it. Nobody should be treated differently because of their ethnicity."
Research by the charity suggested that nearly half of adults in the UK express negative attitudes toward Gypsies, Roma and Traveller people with hate crime being the most common issue reported to the police.
The Pontins owner said it would "enhance staff training and procedures" at the firm, and would take measures "to promote equality throughout its business".
As part of the agreement, Pontins must investigate the "undesirable guests" list, take appropriate action and ensure lessons are learned.
It must commission a review into its booking and commercial vehicle policy and consider any recommendations, and provide equality and diversity training for staff each year.
The EHRC started a probe in February 2020 after complaints from the whistleblower and Travellers. Its Pontins agreement is binding from 22 February 2021.
In 2017 EHRC said that Gypsies and Travellers were "one of the most deprived groups in the Britain" in terms of health and education.
It said in some areas of the UK "local authorities have pioneered ways of meeting the needs of these nomadic groups to preserve their traditional lifestyle, while accessing health and education services and maintaining good relations with other communities."
However, in other areas of the UK "Gypsies and Travellers continue to be the focus of social tension with accommodation issues at the core. People living near unauthorised sites often object to developments without planning permission or where the environment is being damaged."