Hard left former Labour leader Corbyn had his membership reinstated less than three weeks after he was suspended for playing down the scale of anti-Semitism in the party.
His readmittance has sparked a furious response from critics including former Labour MP Lord Austin, who has renewed calls for Mr Corbyn to be kicked out of the party for good.
Mr Corbyn was suspended over his reaction to a bombshell report by the Equality and Human Rights Commission (EHRC), which said that "unlawful" anti-Semitic harassment took place in the party under his watch.
He offered no apology for his failure to tackle the issue, initially saying the scale of anti-Semitism in the party had been "overstated" for political gains.
Labour leader Sir Keir Starmer – who has pledged a "zero tolerance" policy on anti-Semitism – said despite his readmittance Mr Corbyn will not sit as a Labour Party MP in the Commons.
He said in a statement: "I have made it my mission to root out anti-Semitism from the Labour Party. I know that I will judged on my actions, not my words.
"The disciplinary process does not have the confidence of the Jewish community. That became clear once again yesterday."
Sir Keir added: "I have taken the decision not to restore the whip to Jeremy Corbyn. I will keep this situation under review."
Former Dudley North MP Lord Austin, who quit Labour over its lurch towards extremism under Mr Corbyn, has urged Sir Keir to throw his predecessor out of the party.
He said: "So much for the change that was promised.
"Labour had a big opportunity to show Jewish people and the country that it had learnt from the disgraceful way anti-Jewish racism poisoned the party over the last five years and that things would change and they have failed to do that.
"I praised Keir Starmer when Corbyn was suspended but this undermines the progress he has made.
"They have to decide if they want to repair relations with Jewish people and show lifelong Labour voters who turned away in disgust at extremism and racism under Corbyn things have changed.
"They have to decide if they want the person under whose leadership the party broke the law in its treatment of Jewish people in the party.
"Jeremy Corbyn has not apologised for his comments after the EHRC report was published, let alone the appalling way anti-Jewish racism poisoned the party under his leadership or the disgraceful things he said and did himself over the years.
"Permanent exclusion will show Labour is finally getting a grip on this scandal."
Jewish Labour MP Dame Margaret Hodge, said: "I simply cannot comprehend why it is acceptable for Corbyn to be a Labour MP if he thinks anti-Semitism is exaggerated and a political attack, refuses to apologise, never takes responsibility for his actions and rejects the findings of the EHRC report."
In a statement, Mr Corbyn said it was "not his intention" to say anti-Semitism should be tolerated, and that he regretted the "pain" caused.
He added: "To be clear, concerns about anti-Semitism are neither exaggerated nor overstated.
"The point I wished to make was that the vast majority of Labour Party members were and remain committed anti-racists deeply opposed to anti-Semitism."
Gideon Falter, chief executive of Campaign Against Antisemitism, said that by readmitting Mr Corbyn the Labour Party had "once again excused anti-Semitism and proved itself unwilling to address it".
"Mr Corbyn’s suspension should have remained in place until all of our complaints against him were investigated, but no investigation has been undertaken," he added.
"Once again, we see the impact of Labour’s failure to implement an independent disciplinary process as demanded by the EHRC and Sir Keir Starmer’s leadership pledges that have now gone unfulfilled for almost a year.
"The Jewish community has been conned. Mr Corbyn must be resuspended immediately pending investigation of our complaint against him under the new independent process mandated by the EHRC. Britain is watching."
Marie Van Der Zyl, President of the Board of Deputies of British Jews, said the decision was "an absolute sham" and that Mr Corbyn's reinstatement had been "rushed through and judged by a politicised panel stuffed with his own supporters".
Conservative Chairman Amanda Milling, the MP for Cannock Chase, accused Sir Keir of "failing to stand up for British Jews".
"By allowing Jeremy Corbyn back into the Labour Party he is sending a message that the shameful anti-Semitism of recent years should be allowed to continue," she added.
Nicola Richards, the Conservative MP for West Bromwich East, said Labour's attempt to take anti-Semitism seriously had "lasted all of five minutes".
Unite general secretary Len McCluskey, a close ally of Mr Corbyn, said the reinstatement was a "correct, fair and unifying decision".
Mr Corbyn currently sits as an independent MP.