Video footage of Victoria Ayling saying that she wanted to "send the lot back" prompted Labour to call for a public apology.
But the Lincolnshire councillor, a former Conservative election candidate who defected earlier this year, insisted she had been referring only to people in the country illegally.
Mrs Ayling, a councillor in East Lindsey, Lincolnshire, made the video in 2008, to promote her bid to become a Tory MEP.
At the 2010 General Election Mrs Ayling came within 714 votes of winning Great Grimsby for the Tories but then quit the party.
The video was shot by Mrs Ayling's then husband Rob.
The party said it was standing by Mrs Ayling who hopes to stand for Ukip at the 2015 general election.
Mrs Ayling said people read between the lines and saw a woman "caught in the crossfire of a party still trying to position itself after many years."
Ukip leader Nigel Farage said: "I had no reason to believe she held views thatwere extreme or inconsistent with ours."