The decision on Saturday was made at a meeting of members of a commission set up to resolve internal party disputes.
Patrick Mennucci, deputy director of Royal's campaign, said: "If he had not said what he said, we would all ... be in a much more agreeable situation."
"The situation is very unpleasant and the Socialist Party cannot continue to have someone who makes comments of this sort in its ranks."
In November, Freches was reported complaining at a local political meeting that nine out of the 11 members of the national soccer team were black.
"I am ashamed for this country. Soon there will be 11 blacks," the Midi Libre newspaper quoted him as saying.
Freches was also fined 15,000 euros by a French court on Thursday for having called Algerians who fought alongside the French in Algeria's war of independence "sub-human".
He had already been suspended from some party functions after making those comments last year and faced up to six months in jail for "abuse of a group of people because of their ethnic, racial or religious affiliations".