In the speech in his Yorkshire East constituency, Mr Townend said illegal immigration into the UK was "very, very serious" and could change the character of the country in the same way legal immigration once had.
John Townend spoke of "Commonwealth immigration" undermining Britain's "homogenous Anglo-Saxon society" and said Enoch Powell had been right in making pessimistic forecasts about its impact.
The Tory leader has been quick to repudiate the remarks, saying they were "totally unacceptable".
But Liberal Democrat leader Charles Kennedy blamed Mr Townend's comments on Mr Hague whom he said had an "obsession with 'bogus' asylum seekers".
"Mr Townend's remarks confirm the inevitable result of William Hague's leadership," he said
"By stoking up racist views among his followers, Mr Hague has shown himself to be soft on racism and the causes of racism."
In the speech in his Yorkshire East constituency, Mr Townend said illegal immigration into the UK was "very, very serious" and could change the character of the country in the same way legal immigration once had.
"Having absorbed that wave of immigration, that basically was legal - and then we stopped it by the Immigration Act - we now face another wave, and the vast majority of people in this country, including my constituency, are very worried about this," he said.
The speech came days after Mr Hague signed a cross-party pact not to exploit the race issue in the general election campaign.
The Campaign for Racial Equality said that Mr Townend is the only MP it has approached who has so far refused to sign the pledge - although he is not contesting his seat again at the election.
The Tory leader has warned that he will not tolerate attacks on immigrants or asylum seekers by any Conservative candidate.
'Tories inclusive'
"John Townend's remarks on immigration and asylum in no way reflect the position of the Conservative Party," said Mr Hague.
"They are totally unacceptable and I will repudiate them.
"John Townend is not standing at the coming election but I wish to make it clear that remarks of this kind by any candidate at the election will be regarded as being in conflict with the Commission for Racial Equality compact I signed last week, and will not be tolerated by my party."
Mr Hague insisted the Conservatives were "inclusive" and welcomed the contribution of ethnic minorities to British society.
But the fact that Mr Townend put particular blame on Commonwealth immigration and that he has since admitted his original speech used the term "coloured" is likely to stoke the controversy.
In the speech he said illegal immigrants' "new ploy" was to call themselves asylum seekers and "the only way to deal with the problem is to send them back quickly".
'Withdraw whip'
Labour's Mo Mowlam, the Cabinet Office Minister, has written to Mr Hague expressing concern at his failure to take action against Mr Townend for his "outrageous comments".
"The Conservative Party must now withdraw the whip from John Townend, because unless the whip is withdrawn, it gives the green light to others within your party to make speeches of this nature.
"No respectable party should allow any prominent figure within it to make such a speech and the Conservative Party must now take action to demonstrate clearly that this sort of behaviour is unacceptable."
Shadow foreign secretary Francis Maude said: "William (Hague) has absolutely, instantaneously repudiated what John Townend said in the strongest terms and he is absolutely right to do so," he said.
And Tory peer Lord Taylor of Warwick, who is himself black, said: "Mr Townend's comments represent a nasty and ignorant element in our society, which needs to be condemned."