Mr Abdullah was seeking re-election as Umno president in December and did not want to be seen to be giving in to Chinese demands, analysts said.

The issue is further complicated because Mr Ahmad, who is from Mr Abdullah's home state of Penang, is a friend and key political ally.

Mr Ahmad was campaigning against opposition leader Anwar Ibrahim in the August 26 by-election when he made the remarks to Malay villagers. 'Being immigrants from China, how can they ask for equal rights,' Mr Ahmad was quoted as saying in several Chinese-language newspapers on the eve of the vote.

The words have touched a raw nerve among Chinese who had previously not responded to similar remarks but now have more political clout.

Prominent Chinese leaders, heads of clan associations as well as ordinary citizens have lodged police reports against Mr Ahmad, who has not apologised, urging that he be charged for uttering seditious remarks. They also wrote to Mr Abdullah urging him to sack Mr Ahmad from Umno.

'Severe action should be taken. He should either resign from Umno or be charged in court,' said Transport Minister Ong Tee Keat, who is also a senior leader in the Malaysian Chinese Association, an Umno ally. 'We can't let such remarks go unpunished.'

Opposition politicians are more vocal, saying the issue is a test case for Mr Abdullah. 'He has said numerous times he is against racial discrimination. Now is the time to show it,' opposition lawmaker Tony Puah said.

Another opposition lawmaker, Charles Santiago, said Mr Abdullah had always said he was the prime minister for all Malaysians not just a leader for Malays. 'Now is the time to show it. If he cannot discipline his own party member, what is the point of being prime minister?' he said.

On Monday, Mr Abdullah tried to defuse the anger, saying Mr Ahmad made 'mistakes' in the heat of campaigning. 'I will tell him not to do it again. You know in a campaign all sorts of things can come up. I don't think he meant it,' he said.

His explanation failed to placate the Chinese community. 'This is a lame excuse and we reject it,' said veteran lawmaker Lim Kit Siang. 'He should draw a line and stand firm on it no matter who the offender is.'

Racism and discrimination against Chinese, who make up nearly 30 per cent of the Malaysian population, is not confined to Umno. Last month a lawmaker and senior leader of Mr Anwar's People's Justice Party disrupted an inter-faith forum where he shouted at Chinese lawyers to 'go back' to China. Mr Anwar apologised, but no action was taken against Zulkifli Noordin.