John McDonnell has suggested Labour's deputy leader will need to "consider seriously" his links with Max Mosley if the tycoon's views have not changed.
Mr Mosley has said he did believe "financial inducements should be offered to persuade them (immigrants) to go home", adding this was "completely academic because we're 50-odd years on and it's no longer a possible question".
His remarks, in an interview with Channel 4 News, came as it emerged Mr Mosley published a campaign leaflet linking non-white immigrants with diseases such as tuberculosis, VD and leprosy.
The pamphlet, supporting a candidate for his father Sir Oswald Mosley's Union Movement in a 1961 by-election, was unearthed by the Daily Mail in historical archives in Manchester.
Mr McDonnell, asked for his thoughts on Mr Mosley's interview in which financial incentives to encourage immigrants to go home were referenced, said: "Of course it's not our view and it's the sort of proposals which we've condemned in the past outright."
Pressed if Mr Watson should return more than £500,000 received from Mr Mosley, the shadow chancellor told Sunday with Niall Paterson on Sky News: "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."
Mr Watson last week described Mr Mosley as someone who supports the "weak against the strong", adding he would never have given the former Formula One boss "the time of day" if he believed he held views contained in a document published more than 50 years ago.
Labour has also said neither Mr Watson nor the party would take any further payments from Mr Mosley.
Mr Mosley, who has campaigned for tighter press regulation and has donated funds to regulator Impress, said he does not "recognise" the leaflet and it is "not something I would have ever wished to be associated with".
He also said his views have "changed over the last half century".