She said: "I was shocked to hear of these remarks, which are completely unacceptable I immediately asked the Chief Whip to suspend the party whip."
Ms Morris was recorded making the comments by the Huffington Post as she spoke during a discussion on the potential financial services deal that could be struck after Britain leaves the EU.
After suggesting seven per cent of financial services in the UK would be affected by Brexit, she told the audience: "Now I'm sure there will be many people who'll challenge that, but my response and my request is look at the detail, it isn't all doom and gloom.
"Now we get to the real n****r in the woodpile which is in two years what if there is no deal?"
The phrase originated in the American deep south in the mid-19th century and was used to describe slaves who hid in piles of firewood as they fled north to Canada.
Ms Morris later said in a statement sent to the Telegraph: "The comment was totally unintentional. I apologise unreservedly for any offence caused."
But Tory MPs were outraged. Kemi Badenoch, the Tory MP for Saffron Walden told the Telegraph: "I was shocked and appalled to hear her comment. No one should use that sort of language, let alone an MP. I spoke to the Chief Whip about it as soon as I heard to express my dismay, and I am pleased that decisive action has been taken.
"Anne-Marie's remarks are an embarrassment to me as a black woman and to the Conservative party. They are not in any way reflective or representative of our values and everything we stand for."
Tory MP Heidi Allen said: "I'm afraid an apology is not good enough - we must show zero tolerance for racism. MPs must lead by example."
Green Party co-leader Caroline Lucas urged the Tories to remove the whip from Ms Morris, tweeting: "Appalling. Should have the whip removed immediately. No place in our politics for racism, full stop."
Ms Morris was forced to distance herself from electoral agent and partner Roger Kendrick during the election campaign last month, after he claimed "that the crisis in education was due entirely to non-British born immigrants and their high birth rates'."
The MP's comments this morning were made during an event at the East India Club in St James Square and organised by the Politeia group - "a forum for social and economic thinking".
Other panelists at the event included the Conservative MPs Bill Cash and John Redwood.
Mr Redwood told BuzzFeed News: "I don't recall her using a bad word, perhaps I wasn't paying attention.
"I was thinking about what I was going to say next."
Mr Cash added: "I'm not happy at all with that sort of expression. I think that's all I can say. The panelists were making their own comments in their way."
Questioned on whether he wished in retrospect that he had intervened, he said: "Each person was making their own comments and we had to get off for another meeting.
"I can only say that I was not happy with the references."
Liberal Democrat leader Tim Farron said: "This disgusting comment belongs in the era of the Jim Crow laws and has no place in our parliament.
"The Conservative party should withdraw the whip from Anne Marie Morris and they should do it today. Every hour they leave her in place, is a stain on them and the so called 'compassionate conservatism' they supposedly espouse.
"I am utterly shocked that this person represents the good people of Newton Abbott.
"Even if she misspoke this is the nastiest thing I've heard an MP utter since Lord Dixon Smith uttered the same awful phrase a few years ago."
David Isaac, chairman of the Equality and Human Rights Commission, said: "This language belongs to another era and it is highly regrettable that it is not as instinctively abhorrent to Ms Morris as it is to most people.
"At a time when we need to heal divisions in our country, using a phrase like this will offend the vast majority of people across the UK.
"Our MPs have a duty to uphold the highest possible standards of debate and we should not tolerate language of this sort. The Prime Minister should take immediate action."
A Conservative spokesman said: "We are aware of these reports, this kind of language is completely unacceptable, and we are urgently investigating."
Last month, days before the general election, Ms Morris distanced herself from comments made by her partner and agent Roger Kendrick who claimed "that the crisis in education was due entirely to non-British born immigrants and their high birth rates".
The comment was made from the audience at an election hustings. Anne Marie Morris later told a local website: "I don't share the views expressed by Roger Kendrick."
By Christopher Hope & Laura Hughes - Daily Telegraph UK
