Stourbridge councillor Colin Elcock has been given an indefinite suspension after posting on Twitter Islam was “domination not integration”, and asking whether people in Iran were “all on the dole”.
Following an initial 21-day suspension officials in the Dudley Conservative Group issued him with an indefinite suspension.
Council leader Patrick Harley said the comments were "inappropriate" but did not rule out a return for Councillor Elcock, who has apologised, in the future.
He will now sit as an independent and it now means Labour has 36 councillors compared to the Tories' 35. Councillor Elcock's links to the Tories make it unlikely the change could affect the balance of power.
Councillor Harley said: "He has been suspended indefinitely from the group. The comments were inappropriate. It's not what the modern-day Conservative Party is about.
"Colin understands that and realises that. He's gutted about what he's done and recognises he has made a huge mistake and paid the price."
He added: "The door is open at some point in the future as and when the group decides it is appropriate."
The Dudley Green Party, which lodged an official complaint, called the decision "unsurprising and slightly disappointing" as as "in theory he may be allowed to represent the party again one day".
Councillor Elcock still faces possible disciplinary action by Dudley Council's standards board over whether his posts breached the authority’s code of conduct.