The journalist and former ‘News of the World’ editor lambasted the presidential hopeful, saying he had "crossed a line" in his latest scaremongering attempt to enforce a "complete Muslim shutdown".
Morgan, who has been friends with property tycoon since appearing on the US's version of Celebrity Apprentice, said that he supports Trump's efforts to "shake things up" in the election race, but said "there is a limit" to what should be said.
The 50-year-old said: "I think that when you start to call for every Muslim to be banned from America you cross a line.
"And I say that as someone who likes him [Trump] and I consider myself to be a friend of his.
"But I think it's too far and I think it's inflammatory and I think we are already seeing reprisals in America against Muslim Americans - US citizens - and this can only make it worse."
Morgan said that Trump's comment "plays into the hands of ISIS", adding that it is "exactly" what the terrorist group wants - to separate Muslims from everyone else.
Morgan also compared the way that Republicans react to "Muslim shootings" compared to "Christian mass shootings" - of which there have been dozens this year.
Although "friends", the pair have very strong opposing views on gun control in the US.
At nearly every opportunity Morgan criticises the US's lax gun laws, whereas Trump - among the other Republican candidates - believes that the answer to American's gun violence is more ammunitions, not less.
On Tuesday, Morgan published an open letter to Trump, warning him that his comments on Muslims entering the US were "wrong and bigoted".
In the open letter published in the Mail Online, Morgan wrote: "What’s not OK is banning an entire people, a religion, from America. For starters, it violates international law.
"Second, it evokes hideous memories of the Nazi purge of Jews in World War II based solely on their religious ethnicity.
"But perhaps most pertinently for you Donald is that when applied to U.S. citizens who happen to also be Muslim, your rule would be a clear, flagrant breach of the US Constitution. A document you bow at the altar to during every debate about guns."
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