The leader of the right-wing British National Party (BNP), Nick Griffin, was arrested after a television journalist covertly filmed him calling Islam a "vicious, wicked faith."
Griffin, 45, was arrested on suspicion of "incitement to commit racial hatred" and held for questioning by police in Halifax, northern England before he was released on bail hours later.
Surrounded by chanting supporters, Griffin told journalists he was asked to reappear at the police station in March.
When asked if he stood by his comments that Islam was a "vicious, wicked faith", Griffin urged reporters to study the Koran for themselves before saying: "There are aspects of that religion which are wicked."
He then condemned the treatment of women under Islam.
Griffin charged the arrest was part of a "scam" by Prime Minister Tony Blair's Labour Party to win back Muslim votes lost over his war in Iraq, in time for general elections expected next May.
The Muslim Council of Britain (MCB) welcomed the arrest of a politician who is trying to "rebrand" a party in order to hide the "ugly reality" of its racist core, MCB spokesman Inayat Bunglawala told AFP.
However, the MCB feared Griffin may still get off the hook because the law had not "kept pace" with the change in the BNP rhetoric and expressed strong support for a bill aimed at banning incitement of religious hatred.
The party holds seats on various local councils in Britain, including one in the London area, but has no seats in parliament. It also obtained 800,000 votes but no seats in the European elections in June.
Griffin took over as the chairman of the BNP in 1999 and set about trying to shift its image away from the National Front movement of the 1970s and its associations with open racism and violence.
The BNP denies it is racist but promotes an end to immigration and the "voluntary resettlement" of immigrants already living here legally.
A BNP spokesman said earlier that four non-uniformed police officers "awoke the Griffin household from their sleep" during a raid on the family farmhouse in Wales early Tuesday.
Griffin was the 12th person arrested in connection with the investigation into the BBC documentary aired in July.
The BNP's founding chairman John Tyndall, 70, was arrested on suspicion of the same offense on Sunday following a speech he made in the northwestern city of Burnley in March.
The documentary, screened in July, featured secretly filmed footage showing BNP activists confessing to race-hate crimes and Griffin condemning Islam as a "vicious, wicked faith".
Speaking on July 15, when the BBC documentary was screened, Griffin accused the program's makers of selectively editing the speech he is seen delivering, and challenged the authorities to prosecute him.
The BNP spokesman denounced the arrest as an attack on freedom of speech.
The BNP charged that the arrests were intended to disrupt the party's operations and to intimidate its members.
It said on its website that it "exists to secure a future for the indigenous peoples of these islands in the North Atlantic which have been our homeland for millennia."