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The Queensland premier, Annastacia Palaszczuk, will withdraw the generous staffing arrangements made for Katter’s Australian party MPs in the Queensland parliament after a speech made by KAP senator Fraser Anning.

Anning sparked public and political backlash when he used the Nazi-associated phrase “final solution” during his inaugural parliamentary speech criticising Muslim immigration.

Palaszczuk told the Labor state conference in Brisbane on Sunday she would not longer fund the extra staff after the KAP failed to denounce the senator for his remarks.

“We have the right to free speech in our parliaments, but that free speech is not free of consequence,” she told party faithful.

“So because his party will not denounce senator Fraser Anning, I denounce his party.”

Anning’s remarks were backed by federal KAP leader Bob Katter and his son and leader of the Queensland KAP Robbie Katter.

Palaszczuk had promised a “review” of the special arrangement which allows the three KAP MPs five more staff than usually allocated.

“I am withdrawing the additional staff I granted to Katter’s Australian party because it tolerates the intolerable and it defends the indefensible, and senator Fraser Anning’s statements are indefensible,” she said on Sunday.

The Palaszczuk government had a close working relationship with the Queensland KAP in its first term, relying on its two votes when Labor was in minority.

Robbie Katter said Anning’s words had been twisted and taken out of context.

Anning, who defected from One Nation to join KAP immediately after taking his Queensland Senate seat, has refused to apologise for any offence caused.

In a statement on Sunday, the Anti-Defamation Commission applauded Palaszczuk’s “principled and clear-eyed stance”.

“Her actions demonstrate that Anning’s and Katter’s words are not who we are as a nation and that if we ignore these outrageous and troubling sentiments that appeal to xenophobia, we empower them,” said the organisation’s chairman, Dvir Abramovich.

“The speech by Senator Anning and Katter’s defence of it will be recalled as a shameful stain on our democracy. Urging a ban on Muslim immigration is a betrayal of our core values, and seeks to normalise religious discrimination.

“Excluding anyone from entering our shores on the basis of their faith sets a dangerous precedent and is inconsistent with foundational Australian ideals of religious freedom and acceptance.”