The MP for Mitcham and Morden, Siobhain McDonagh, said she was deeply troubled that the British National Party laid a wreath as part of the Remembrance service at Mitcham war memorial.
Around 40 members of the BNP's Morden and Wandsworth branch attended the event on Sunday, November 11.
Ms McDonagh said: "It's so sad and disappointing that these people attended. We honour the victims of war because so many lost their lives in a fight against fascism and the very politics the BNP support.
"Their presence dishonours the work and sacrifices that were made. The people who died in both world wars came from all over the Commonwealth, black and white, and fought for a freedom that the BNP doesn't want. I'm deeply troubled by it."
Patric Cunnane, a resident who attended the service, said: "I was astonished that they were allowed to lay a wreath on the war memorial. It was particularly obnoxious that one of them saluted the memorial after laying the wreath.
"I hope that Merton Council and the Royal British Legion can prevent the BNP from abusing a very important day in our nation's life at next year's service."
A spokesman for Merton Council said there are no restrictions on who can attend a Remembrance event and any political party has the right to be part of a service.
The BNP's participation was not only reported on its website but also on Stormfront.com, a website owned by Don Black, a former Grand Wizard of the Ku Klux Klan and member of the American Nazi Party.
But the BNP claims it is not a racist party and has sought to distance itself from the extreme neo-Nazi image widely reported after its leader Nick Griffin went on record to deny the Holocaust in 1997.
Simon Darby, press spokesman for the party, said: "It's quite ridiculous; we have a lot of members who are ex-military. It's not our aim to make a political issue out of this. Everybody has the right to attend a Remembrance service."
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