Rosemary Carroll, who shared a post comparing an Asian man with a dog last June, was reinstated by the Tories in Pendle, Lancashire – giving the party enough seats to take control of the council.
The party have been accused of “appalling cynicism” over the move, with officials facing growing calls to act.
Ms Carroll, a former mayor, said she meant to delete the post but accidentally published it by mistake. She was suspended for three months in August 2017 and continued to sit as an independent afterwards.
Business Secretary Greg Clark said such views were incompatible with the party, while Labour’s John McDonnell has called for Ms Carroll to be suspended again.
When asked about the case on Sky’s Sophy Ridge on Sunday programme, party chairman Brandon Lewis said he would look at the matter again.
However, he also said the case had been reviewed locally and the councillor had been disciplined.
“Well let’s be very clear, her position is it was an accident,” Mr Lewis said.
“She was suspended, she has been through diversity training, the punishment she had was endorsed by the Labour party and the BNP who supported them on that council at the time, so we need to be very clear about what the facts are.
“But it is something I am going to be having a look at because we’ve been very clear from the beginning, in our party if we have an issue come up as we have done over the last few months, when it comes up we don’t do what the Labour Party does and pretend it doesn’t exist, we will deal with it.”
When pressed if this meant Ms Carroll could be kicked out of the party, Mr Lewis replied: “I am not going to pre-judge any kind of due diligence work.
“It’s right that we go through this properly.
“But as I stressed, this was dealt with locally last year and the position that was taken was one that was actually not just endorsed by it but actually of course the council’s position was the Labour party and the BNP so it is somewhat ironic, if not hypocritical, given the position they have taken in the last 24 hours.”
Mr McDonnell told the BBC’s Andrew Marr Show: “We can’t tolerate racism in any party. You mentioned Pendle, I’m going to Pendle today.
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“To have the Conservative Party take control of the council by reinstating a councillor who used the foulest racist joke is unacceptable.
“I want Theresa May to say now to Brandon Lewis, who congratulated those councillors, first of all to apologise and suspend that councillor again. It’s unacceptable.”