Steve Latham, who is aiming to win in West Bromwich East, made the remarks on his Facebook page.
UKIP has today stood by him after investigating. The party could not drop him as a candidate even if it wanted to as nominations closed on April 9.
Last night, he apologised and said he was only criticising extremists, not Muslims in general. The former pub landlord, now a coach driver, put a message on Facebook linking to an old news story about a then-Labour minister claiming the party had been infiltrated by a fundamentalist Muslim group that wanted to create an 'Islamic social and political order' in Britain.
Mr Latham posted his own remarks saying: "So the Muslims have infiltrated the Labour party. What a surprise. Who would have guessed such a thing was possible? The Labour Party of Diane Abbott and Harriet Harman infiltrated by the evil cult of Islam. Wow."
A spokesman for UKIP said today: "UKIP notes that Steve Latham has apologised for his remark and explained that he was intending to criticise only extremists and not all Muslims. UKIP has many Muslim members, some of them candidates in this election, who fully support our positions on religion, immigration, culture and social cohesion, and clearly Mr Latham's comment did not represent the party's view."
The comments come at a sensitive time for UKIP which yesterday launched its manifesto for the election. Party leader Nigel Farage set out plans for an early referendum on withdrawal from the European Union and a major reduction in immigration.
Mr Latham, who used to run the Scott Arms and Joker pubs in Great Barr, said he could not recall putting the post on Facebook when he was asked about it. But he said: "I wouldn't have meant it about Islam itself. It would have been about the people causing problems.
"It's just the extremists. And there are extremists in all faiths. All I can do is apologise. I meant no disrespect."
Sandwell Council's Labour leader Darren Cooper said: "This is an outrageous statement to make about someone else's religion. I call on Nigel Farage to suspend Steve Latham as a Parliamentary candidate."
UKIP is fielding candidates across the West Midlands.
The party gained councillors in Cannock Chase, Walsall, Sandwell and Wolverhampton and especially in Dudley, where it won seven seats. UKIP is on course to come at least second in Dudley North, revealed as one of its top 10 targets in the country.
UKIP candidate Steve Latham's comments about the 'evil cult of Islam' have been ridiculed by a Black Country Imam who said the religion had no more 'infiltrated' politics than Star Wars had.
Imam Ghulam Rasool of the Kanzul Iman Central Jamia Mosque in Tipton said: "If this man were to find out how many Labour MPs like Star Wars, would he claim they had been infiltrated by the Jedi?
"There are three million Muslims in Britain. We play an active part in all walks of life, including politics. We've no more infiltrated Labour than we have sport or anything else.
"The sort of things he has said just stoke up negativity and play on people's fears."
Muhammad Yaseen Khan, president of the Ahmadiyya Muslim Association in Wolverhampton, said: "This is the language of hate. Any community can be the target of slurs. I reject utterly this man's assertion.
"Some Islamic clerics have helped some people to form this opinion with what they have said in the name of Islam. But they do not represent Islam."
Tom Watson, defending the West Bromwich East seat for Labour, said: "It is completely unacceptable and I am sure UKIP will deal with him."