Mainstream politicians have left a vacuum for the British National Party to get votes, a contender in Labour's deputy leader race has said.
Mr Cruddas thinks local campaigning can thwart the BNP
Backbench MP Jon Cruddas said the acquittal of the BNP leader, Nick Griffin, on a charge of inciting racial hatred was a wake-up call.
Mr Cruddas added that the BNP was thriving in poor communities amid an atmosphere of fear and tension.
The MP backs more local campaigning by the Labour Party.
Mr Cruddas has experience with the issue - as some of his constituents in east London voted for the BNP councillors.
He warned that where society was fragmenting, the BNP was becoming a rival to Labour.
Mr Cruddas said the BNP thrived in poor communities and claimed mainstream parties had created "fear, tension and suspicion" during the Muslim veil debate.
In a speech to the Searchlight conference for Labour and union activists, he said: "Some communities have been badly affected by a decline in traditional industries, a shortage of affordable housing and changing migration patterns."
He added: "We have to be honest in saying the debate over the veil, talking tough on immigration and race or the language used in the 'war on terror' does not reassure people but actually makes the situation worse.
"It creates fear, tension and suspicion. It divides communities and plays into the hands of extremism."
Ministers are considering whether race hate laws should be revised after Mr Griffin was cleared of charges relating to speeches he made.
On Friday, a jury decided speeches by Mr Griffin and party activist Mark Collett in 2004 had not incited racial hatred.