Labour’s John McDonnell has suggested his Shadow Cabinet colleague Tom Watson should hand back half-a-million pounds in donations from Max Mosley.

Mosley, the ex-Formula One boss, has faced condemnation in the last week after the Daily Mail and Channel 4 News found a 1961 election leaflet that suggested immigrants were bringing disease to the UK and threatening jobs.

The pamphlet said it was “published by” Mosley, the agent in the Manchester Moss Side by-election for the candidate of the Union Movement. In an astonishing interview on Channel 4 News, Mosley repeatedly asserted he was not a racist – though admitted some of the comments published in the leaflet were.

The Labour Party has since said it will accept no more donations from Mosley, but pressure has been mounting on Watson, the party’s deputy leader, to return the money he had already been gifted.

On Sunday, McDonnell, Labour’s Shadow Chancellor, said Watson should “consider” his relationship with the privacy activist “and the finances as well”.

Appearing on the Sky News show Sunday With Niall Paterson, McDonnell said Mosley’s view is  “not our view and it’s the sort of proposals which we’ve condemned in the past outright”.

Pressed further if Watson should return more than £500,000 he had received from Mosley, the Shadow Chancellor said: “The money was given to Tom, Tom took that decision.

“He took that decision on the basis, I believe, that Max Mosley’s views had changed from years ago.”

He added: “If those are the same views now, well Tom will really need to consider seriously exactly that relationship with Max Mosley and the finances as well.

“Because if he is reiterating these views from the past, he clearly hasn’t changed.”

In the Commons this week, Watson said: “If I had thought for one moment that he held the views contained in that leaflet of 57 years ago, I would not have given him the time of day.

“He is, however, a man who, in the face of great family tragedy and overwhelming media intimidation, chose to use his limited resources to support the weak against the strong.”

A Labour spokesman said during the week: “We’ve shifted away from payments and contributions from large wealthy donors.

“We have wanted to keep quite a strong system of control on that and in the case of the Max Mosely payments they have come to an end and they won’t be restarted.”