The government says the bill will improve trade union rights
Labour MPs are pushing for trade unions to be given the right to expel members who belong to the BNP without penalty.
They are attempting to overturn a Lords amendment to the Employment Bill offering more safeguards to union members expelled for BNP membership.
Labour MP Tony Lloyd is leading calls for unions have more freedom to expel members who oppose their beliefs.
But BNP leader Nick Griffin said it was a "totalitarian" move aimed at excluding Labour's political opponents.
Mr Griffin told BBC Radio 4's Today programme: "We feel this is a piece of very unpleasant, totalitarian legislation and it's not about trade unionists being able to decide who else is in the union really.
"This is about the Labour Party giving its allies in the top of the union movement, the opportunity to throw out people, not so much that they don't agree with, but who are standing with a different political agenda to the Labour Party.
"And we know for sure that there are very large numbers of ordinary workers who are absolutely disgusted with things such as off-shoring of jobs, such as cheap labour undermining their work in this country, and they want to do something about this.
"And one of the most effective ways to do that is to take the unions out of the hands of Labour activists and put it into the hands of people who stand up for ordinary British workers."
Tony Lloyd, leader of the Parliamentary Labour Party, said he did not want to address the points Mr Griffin had made because "Nick Griffin is a representative of a fascist party and that really is the central issue we are addressing".
He added: "It is whether a trade union, on behalf of its black members, its Asian members, its white members who don't want to be in the same body as fascists, are going to have the legal opportunity to exclude people whose ambitions are incompatible with that type of union."
The Employment Bill will implement a judgement from the European Court of Human Rights aimed at giving trade unions the power to deny membership to individuals whose political beliefs are in opposition to their own.
The amendments introduced in the Lords do not overturn this - but simply introduce "safeguards" such as compensation for union members judged to be unfairly expelled from a trade union.
Explaining what the amendments would mean to unions, Lib Dem peer Lord Lester said: "They [trade unions] must amend their rule book to make it clear that the BNP is incompatible with their objectives, the second is they must act fairly in their procedure and the last is that they must not destroy someone's livelihood or subject them to exceptional hardship."
But the trade unions and their supporters on the Labour benches argue that the amendments could lead to "vexacious litigation" by the BNP - and that the BNP could simply change its name to avoid a ban.
The government is expected to back the Lords amendment.
MPs debated the proposed legislation in the Commons on Tuesday but it was not put to a vote.
A spokesman for the Department for Business, Enterprise and Regulatory Reform said: "This is a very delicate issue that involves peoples' rights to freedom of association and their political beliefs. The government's approach will strike a balance between these rights."
'Politics of division'
But Labour MP Jon Cruddas, who has been a leading campaigner against the BNP in his Dagenham constituency, said that, without government support, unions would be powerless to act in the face of attacks from within.
He added: "It is incomprehensible that while the threat to our communities posed by the BNP grows, the very law which should support unions as they seek to protect themselves from the far right could be seriously weakened.
"This is not the time or place to give in to those who do not understand the central role unions play in bringing our communities and workplaces together. We must not open up our unions to the politics of division."
Tony Woodley, joint general secretary of the Unite union, said: "Without amendment to protect unions and their members, this bill will send a big signal to the BNP and other merchants of hate that they have a place in our movement."
The proposed legislation was sparked by the case of Virgin train driver Jay Lee, who was expelled by Aslef after standing unsuccessfully as a BNP candidate in 2002.
Mr Lee won the right to remain a member of Aslef at two employment tribunals, which both said a union could expel someone because of their conduct, but not because they were a member of a particular political party.
But the European Court over-ruled the tribunals last year, saying Mr Lee would not suffer financially as a result of being expelled, as Aslef did not operate a closed shop and he was free to join another union.