Sajid Javid has refused to directly say Donald Trump is racist after his supporters aimed chants of "send her back" at a Somali-born congresswoman.
In a speech on confronting extremism, the home secretary expressed concern about "naked populism" in the US under the presidency of Donald Trump.
He also condemned "the barely-masked racism of nationalism", but when asked if he thought Mr Trump was racist he did not give a direct answer.
The US president has been engaged in a war of words with four female Democrats - who he has branded "The Squad" - since he used his Twitter account to tell them to "go back" to the "crime infested places from which they came".
Three of the congresswomen were born in the US, with the exception of Somali-born Ilhan Omar, who became a US citizen aged 17 after claiming asylum.
Mr Trump did not intervene - and paused his speech - as his supporters chanted "send her back" when he mentioned Ms Omar at a recent rally.
He has since said he "felt a little bit badly" about the chants.
In his speech in central London, Mr Javid spoke of how around the world "populism and even open racism have catapulted extremists to power".
He said he was "proud" that, in the UK, "this has not happened in mainstream politics".
"Thankfully our politics has not gone down the same road as much of Europe and the US," Mr Javid added. "But we must act now to avoid sliding into the barely-masked racism of nationalism.
"Because there's one thing I know for sure about this country: We're better than that."
Asked if he would condemn Mr Trump, Mr Javid spoke of how the UK and US are "two of the closest allies".
"By being good allies it also means you can be critical of friends as well," he said. "I am deeply concerned about the polarisation we are seeing in the US, some of the naked populism that we see."
On the "send her back" chants, Mr Javid - who is the son of Pakistani immigrants - added: "Imagine if people were saying to me in Britain: 'Send him back'.
"I know how I'd feel, I'd like to think most of society would think that's just completely unacceptable in a modern, liberal democracy to have that kind of situation and not be appalled by it.
"It's not something I want to see or hear in the UK and it's incumbent on all of us to fight prejudice in all its forms."
But, asked if he believed Mr Trump is racist, the home secretary would only repeat his message that it's "right" that the UK is a "constructive friend when we hear about things we don't like".
He also pointed to criticism of the US president's "go back" tweets about the congresswomen by Prime Minister Theresa May and the two candidates to replace her, Foreign Secretary Jeremy Hunt and Boris Johnson.
Mr Javid used his speech to recount his personal experiences of racism, as he criticised "loose language" about immigration being "used at all levels".
"I'm from an immigrant family and I know what it feels like to be told to 'go back where you came from,'" he said, quipping: "And I don't think they mean Rochdale!"
The home secretary outlined a three-pronged approach to tackling extremism and steps to promoting integration.
He said: "Everyone has a part to play: broadcasters who must not give a platform to extremists; police who must swoop on the worst offenders; public figures who must moderate their language."
Mr Javid decried how "public discourse is hardening and becoming less constructive", but branded the UK "the most successful, multi-racial democracy in the world".
He added: "UKIP have floundered since they moved further right, with their leader being advised by EDL founder Stephen Yaxley-Lennon [also known as Tommy Robinson] - a man that is now behind bars.
"That decision sparked a wave of resignations and their support has collapsed.
"We must give credit where credit is due, so I applaud Nigel Farage for walking away and branding UKIP thugs and extremists.
"Even though his Brexit Party has not made my life any easier, I want to be clear - they are not extremists.
"Because it doesn't help to exaggerate the problem, to demonise anyone with a different view and to see danger when it is not there."