UKIP MEP Amjad Bashir has defected to the Conservative Party, with David Cameron saying he was "absolutely delighted" with the decision.
But Nigel Farage's party said it had suspended him over allegations of a "grave nature", and would be forwarding its evidence to the police.
A senior Tory source has dismissed the move as a "desperate attempt" to divert attention from his decision to quit UKIP.
As news of his defection emerged, UKIP announced it was suspending the MEP for Yorkshire and the Humber - pending an investigation into "extremely serious" claims of interfering in the candidate selection process, as well as unanswered financial and employment questions.
"UKIP will not tolerate anyone abusing their positions in the party, as we have a firm commitment to differing ourselves from the existing political classes," said a party statement.
Mr Bashir, who was formerly UKIP's small business spokesman, was accused of hypocrisy last May after it emerged that seven people were arrested for immigration offences in a raid on his restaurant.
At the time, the party leader had refused to "prejudge" the case, as Mr Bashir's family had launched an appeal.
In addition, Mr Bashir reportedly held a "continued affiliation" with Mujeeb Bhutto - who resigned from the party in 2014 after it emerged he had been jailed for leading a gang of kidnappers in Pakistan.
Explaining his reasons for quitting the party, Mr Bashir told the Telegraph that UKIP had become a "party of ruthless self-interest" and was "pretty amateur".
He claimed it was "delusional" about its chances of winning Parliamentary seats in May's General Election, adding: "After almost three years as a party member, I realise that UKIP is more concerned with furthering its own interests as a political party than delivering for the British people."
In a statement, he continued: "On Friday, I met David Cameron and applied to join the Conservative Party. It is clear UKIP's action today is a desperate attempt to spoil this and is without any foundation.
"The issues raised in my notice of suspension are historic and well known to the party. Indeed, on one of them, Nigel Farage has publicly defended me over it."
The defection is a boost for the Prime Minister, who saw two of his own MPs defect to UKIP last year.
He said: "I'm absolutely delighted that Amjad has decided to leave UKIP and join the Conservative Party."
Meanwhile, one of Mr Farage's most senior aides has sparked controversy in claiming Britain has "hundreds of thousands of bigots" and said UKIP is proud to stand up for them.
Matthew Richardson, the party's secretary, has dismissed his comments as "lighthearted harmless banter in the pub".
A UKIP spokesperson said Mr Bashir promised in his resignation letter that his decision was "not intended to cause any embarrassment for UKIP", and that his defection was "a principled decision".
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