Councillor Jane Mackenzie has hit out at the "toxic culture" of the party and said she can no longer support Labour at a local or national level.
It comes after Dr Laura Davies was deselected and replaced by Julia Buckley following a private vote.
"With a heavy heart I am leaving the Labour party as I can no longer support the toxic culture which I see represented at a local and national level," Councillor Mackenzie said.
"I have always fought for social justice and to defend free speech, and I believed that the Labour party stood for these values too.
"However, I find instead that this party has become a hostile place to be a member of the Jewish community - or just simply to be an independent thinking person. There is an atmosphere of intimidation, at a local and national level, with members fearful of expressing any views that deviate from the increasingly narrow party line."
She claimed that she has been subjected to censorship and intimidation from officers within the local party.
"The latest victim of this is Dr Laura Davies," Councillor Mackenzie said.
"In the tried and tested method used by repressive regimes, she was secretly accused of various misdemeanours by local informants, who have remained anonymous. On this basis she was deselected three days later, without consulting the members who overwhelmingly selected her in the first place.
"I am ashamed that the Labour party which I joined so many years ago has come to this, and I can’t be part of it.
"I can’t stay silent and watch our members, and my fellow councillors, being manipulated in this way. If I don’t speak up, then I believe I will be condoning this bullying behaviour, and I’m not prepared to do that."
Councillor Mackenzie believes just a very small percentage of members actually voted to deselect Dr Davies and criticised the party for not announcing the outcome.
She added: "Even now it remains a secret and we still have not been told how many of us voted for, or against the motion.
"This deliberate sabotaging of our plans to field a credible and respected candidate in Shrewsbury was not done in my name, and I feel compelled to speak out and put the record straight.
"It seems to me that most political parties these days are self-serving, rather than serving the public they were elected to represent. It’s no surprise that people feel sick to death with the hypocrisy and lack of honesty shown by many politicians."
Councillor Mackenzie will continue in her capacity as a Shropshire Councillor as an independent.