The party said Naz Shah had been barred from taking part in the party's activities or in participating in the grouping of Labour lawmakers in Parliament.
Shah was under pressure over comments including a 2014 Facebook post in which she shared a graphic that showed the outline of Israel superimposed on a map of the US under the headline "Solution for Israel-Palestine Conflict - Relocate Israel into United States."
In a statement to the House of Commons today, Shah said she "wholeheartedly" apologized.
"I accept and understand that the words I used caused upset and hurt to the Jewish community and I deeply regret that," she said. "Anti-Semitism is racism, full stop."
Shah also wrote in Jewish News that she wished to make an "unequivocal apology for statements and ideas that I have foolishly endorsed in the past."
But Jewish groups and some Labour supporters say Corbyn hasn't done enough to clamp down on anti-Semitism in the party. He comes from Labour's left wing, which has strong ties to the pro-Palestinian movement.
Some Labour lawmakers also accused him of dithering for at first declining to suspend Shah, then changing his mind.
"There is a real problem for the Labour Party if we don't look like we're taking these things seriously," lawmaker Lisa Nandy told the BBC.
"The right thing to do is a full investigation and to make sure we don't tolerate anti-Semitism in our party at all.
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