A councillor who shared a Facebook post comparing Israel to Nazi Germany will be readmitted to the Oxford Labour group after his suspension ends.
Ben Lloyd-Shogbesan resigned from the group, and was later suspended, when social media shares he made were called anti-Semitic and homophobic.
Other councillors have opposed Labour's decision, with one branding the result "extremely disappointing".
Mr Lloyd-Shogbesan has apologised for causing offence "to many people".
An investigation by the council's standards committee found he was not acting in a councillor capacity when posting on social media, so had not broken the council's code of conduct.
Susan Brown, leader of the Labour group and the council, said it was clear that the material shared by Mr Lloyd-Shogbesan was "inappropriate and offensive".
She added: "In suspending councillor Lloyd-Shogbesan from the group, we disassociate ourselves from his actions and have told him there can never be a repeat of them or any other behaviour by him which brings the party and the group into disrepute."
The suspension began on 1 October and will conclude on 1 January 2019, after which the party will readmit Mr Lloyd-Shogbesan.
Liberal Democrat councillor Andrew Gant said Labour "have taken the wrong course of action".
"I've said consistently that his behaviour is incompatible with continuing as a councillor, and I still think that," he said.
Oxfordshire Green Party councillor Craig Simmons said he was "extremely disappointed" by the decision: "If this had been someone from another party they would have certainly been forced to resign - hounded out by the Labour majority."
Following the conclusion of an Oxford City Council Standards Committee inquiry, the national Labour Party said it would take no further action.
Mr Lloyd-Shogbesan has been sitting as an independent councillor for the Lye Valley ward since his withdrawal.
He said: "I know I have let many people down and I acted with very poor judgement.
"I will continue to reach out to the individuals and community groups I offended and to make amends. I will work doubly hard to serve my constituents in Lye Valley."
After fierce criticism the Labour Party has adopted a definition of anti-Semitism that includes, as an example, comparing Israel to Nazi Germany.