Baroness Dianne Hayter said the "bunker mentality" around Mr Corbyn's leadership was like "the last days of Hitler".
Labour's deputy leader in the Lords Baroness Hayter lost her post as shadow Brexit minister after she attacked Mr Corbyn's inner circle and the way it criticised the BBC over a documentary probing anti-Semitism in the party.
A Labour Party spokesman said: "Dianne Hayter has been sacked from her frontbench position with immediate effect for her deeply offensive remarks about Jeremy Corbyn and his office.
"To compare the Labour leader and Labour Party staff working to elect a Labour government to the Nazi regime is truly contemptible, and grossly insensitive to Jewish staff in particular."
The row erupted after an address Baroness Hayter, who remains the party's deputy leader in the Lords because it is an elected position, gave to a Labour fringe group.
The peer was highly critical of the Labour leader's inner circle who she claimed had refused to give the party's ruling National Executive Committee (NEC) key information.
Baroness Hayter said those around Mr Corbyn had a "bunker mentality".
She told a meeting of the centre-left Labour First group: "Those of you who haven't [read the book] will have watched the film 'Bunker', about the last days of Hitler, of how you stop receiving into the inner group any information which suggests that things are not going the way you want."
The row came after Prime Minister Theresa May called on Mr Corbyn to apologise for his "failure to deal with racism" in his party.
Mr Corbyn hit back saying Labour was totally opposed to racism and calling on Mrs May to deal with Tory Islamophobia.