The Liberal Democrats, Britain's third-largest political party, relegated Jenny Tonge MP as its top spokesperson for international development after her comments sparked an outcry across the political spectrum.
More than 450 Israelis have been killed in more than 100 human bombings by Palestinian resistance fighters during their three-year uprising against Israeli occupation.
Speaking to a pro-Palestinian lobby group on Thursday, Tonge said life for Palestinians under Israeli rule could be intolerable.
"That sort of thing repeated on a daily basis made me understand how people can become suicide bombers," she said.
"I think if I had to live in that situation - and I say that advisedly - I might just consider becoming one myself."
She later repeated her remarks to Britain's Sky televison, although she stressed she did not condone the bombings.
"They (Tonge's comment) are not compatible with Liberal Democrat party policies and principles... There can be no justification, under any circumstances for taking innocent lives through terrorism"
Liberal Democrat leader
However, Liberal Democrat leader Charles Kennedy deemed her opinions "unacceptable", and asked her to step down on Friday.
"They are not compatible with Liberal Democrat party policies and principles... There can be no justification, under any circumstances for taking innocent lives through terrorism," he said.
Kennedy's decision came after politicians and Jewish groups expressed outrage over Tonge's stance.
Neville Nagler, of The Board of Deputies of British Jews, said: "We are shocked that a British Member of Parliament could so distort the facts as to justify suicide bombings.
"There can be absolutely no justification for such a statement. Ms Tonge has suggested that she would consider becoming a murderer of innocent civilians - of men, women and children."
And Opposition Conservative Foreign Secretary Michael Ancram said Tonge's words would "sicken those who have lost loved ones to suicide bombers".
However, the Muslim Association of Britian said Tonge was sacked for speaking the truth.
Spokesman Azzam Tamimi, himself a Palestinian, said: "I think Jenny Tonge is a decent woman who has seen what the Palestinians are going through and has spoken the truth about it. It is a fact that the Palestinians are being driven to these bombings.
"Charles Kennedy has been under intense pressure from the Zionist lobby and from politicains from other parties and he has succumbed to that pressure.
"This is the second time he has done this. The first was when he joined the first big anti-war march and then retreated from that position. And now he has retreated again. He has proved he is not offering a credible alternative for British voters."
"We would like to see an end to these bombings tonight and we mourn the loss of life on both sides. But the Palestinians are facing an enemy that is armed to the teeth and is backed by the United States and its Zionist supporters around the world. So in this context these attacks are understandable"
Muslim Association of Britian
Tamimi said human bombings are the response of a defenceless people to the overwhelming military superiority of the Israelis.
"We would like to see an end to these bombings tonight and we mourn the loss of life on both sides," he said.
"But the Palestinians are facing an enemy that is armed to the teeth and is backed by the United States and its Zionist supporters around the world. So in this context these attacks are understandable."
He added: "I think that about 60% of the British public support what Jenny Tonge said, and the majority of MPs would love to say the same thing but they know if they do they will be hung out to dry.
"The Zionist lobby has made certain subjects taboo, and people are afraid of speaking the truth because they know they will be accused of anti-Semitism."