Godfrey Bloom, the politician censured last week for joking that party activists were "sluts", says he is quitting the UKIP group in Europe.
In a statement he said he would stay in the European Parliament as an independent and remain a UKIP member.
But he added he had "felt for some time" the party was no longer for him.
UKIP leader Nigel Farage insisted nothing Mr Bloom had said was in malice and he did not want to see his colleague "hounded out of the party".
The Yorkshire and Humber MEP had the whip removed last week after a recording emerged of him joking that a group of UKIP women who did not clean behind their fridges were "sluts".
His statement said: "I have felt for some time now that the 'New UKIP' is not really right for me, any more, perhaps, than New Labour was right for the Dennis 'The beast of Bolsover' Skinner."
He said it had been a "pleasure" to work with the party's "loyal membership" for 15 years.
And he thanked "the thousands of people who have supported me with messages of goodwill in the recent months and particularly in recent days".
Mr Farage told the BBC the MEP would still be popular in his Yorkshire constituency where he would "actively campaign" for his expected successor in next year's European elections.
"All the things Godfrey has said have not been meant in malice but they have all been tremendous distractions from the main messages UKIP is trying to push out," he said.
"Nearly everything he has said has been meant as a joke."
The UKIP leader said "the vast majority" of party members would not want to see Mr Bloom "drummed out of the brownies".
The controversial politician was criticised recently when he referred to "bongo-bongo land".
But he had the whip removed last week - suspending him from taking part in formal party business - after Mr Farage said he had "overshadowed" UKIP's annual conference.
He was heard joking that the "women in politics" conference fringe meeting was "full of sluts" who did not clean behind their fridges.
The joke prompted loud laughter.
Speaking to journalists afterwards, Mr Bloom said he was using the word as it was originally intended - to refer to women who were not tidy.
When confronted about UKIP campaign literature which allegedly featured no non-white faces, the MEP accused Channel 4 News journalist Michael Crick of being a racist and rapped him around the head with the leaflet.
Mr Farage was furious that the MEP's latest controversy had distracted from what he had said was an otherwise successful conference.
Party chairman Steve Crowther said after the incident: "I have withdrawn the whip from Godfrey Bloom, pending a formal disciplinary hearing."
Sources close to Mr Farage told the BBC Mr Bloom's decision to quit as a UKIP MEP "makes permanent a temporary situation".