Paul Nuttall admitted at a hustings on Tuesday that the poster had not gone down as well as expected.
He said campaigns on both sides of the EU referendum debate had "pushed barriers" of what was acceptable, but maintained he would not have issued the poster of a group of migrants pictured walking through European countryside.
The ad for Brexit, which was released last week, attracted a string of criticism when it was first released, including from Nicola Sturgeon, who branded it "disgusting", "vile" and "racist".
A white person who featured in the image was obscured by text overlaying him.
Farage had defended the poster after mounting criticism, and even claimed no-one cared about it until after the death of Jo Cox.
But on Tuesday his number two Paul Nuttall said: “I personally wouldn’t have gone ahead with that poster."
The deputy leader did say though that it had "raised legitimate concerns”.
The admission was blasted by Stronger In's James McGrory, who claimed it was proof of the Brexit cause's "bigoted, dog-whistle campaign".
“When even Paul Nuttall admits UKIP’s poster was wrong, you know that something’s up," McGrory told The Huffington Post UK.
“UKIP, and the whole of the Leave campaign, are fighting an increasingly bigoted, dog-whistle campaign.
“A vote to Leave is a vote for a divided Britain dominated by an ugly brand of politics."