Mr Harawira will be confined to his Te Tai Tokerau electorate in the Far North until the end of the year, then rejoin the caucus in 2010.
He made a fullsome apology this morning, and the party said he accepted he had made mistakes which had caused damage.
He had apologised to the party for damage done.
Harawira got into trouble with his party because of an unauthorised trip to Paris while on a parliamentary visit to Paris and his racially abusive email in defence of it where he referred to white people as motherf...ers.
Party leaders asked him to consider leaving and becoming an independent, but he said he was determined to stay in the ranks.
After a series of hui in his electorate, the party caucus met late into last night to consider what to do. The meeting was not attended by co-leader Tariana Turia, who is recovering from gastric bypass surgery, but the decision to allow Mr Harawira to stay was unanimous, the other co-leader Pita Sharples said.
A sombre Mr Harawira said sorry to his fellow MPs for pain and suffering he caused and for how his remarks had derailed credibility the party had fought to achieve. He also apologised more generally for offence caused.
"I apologise also to those New Zealanders, both Maori and Pakeha, and particularly women, who have been offended by my comments. They were insensitive, they were hurtful, they were unnecessary, and I apologise for the grief and anguish that they have caused."
However when pressed about whether he accepted his comments were racist, Mr Harawira was defensive. He defined racism as "the power to impose your racial views on the rest of society.
"Given that I don't have that power as an individual member of Parliament, it's kind of difficult to assume that my comments are racist."
However, he repeated that his apologies were genuine and sincere and said he did not want to get into a debate about them.
In his first apology after the incident Mr Harawira said sorry for swearing but not the message of his email and during interviews said Labour leader Phil Goff should be shot for suggesting he be sacked.
There was no apology for that remark today.
"There's a whole range of things people might like me to apologise for ever since I was a child. I am apologising for the comments I made in an email which became public."
Dr Sharples denied the leadership had backed down in the face of Mr Harawira's refusal to go.
"I think we've handled it our way. We're distinct from any other party in Parliament and I think people have got to realise that," he told reporters in Auckland.
The party had emphasised to Mr Harawira that he was responsible to the whole party and not just his electorate.
"No, we never ever made him go, just be clear about that. What we said is if you're going to keep saying that you are representing only Tai Tokerau, then perhaps that gives you more freedom and you should look at that option. No one ever kicked him out or said he was being kicked out."
While Mr Harawira will not return to Parliament this year he will be paid as normal.
"It's good value because we listened to our elders and he had two weeks there to talk to and work with his elders and that's got to be great for anybody."
The time out period was not a suspension and the apology was the end of the matter.
"He's a full part of the party, he's back," he said.
Dr Sharples admitted that should Mr Harawira's behaviour continue it would make it hard for the party to get gains and it had already caused damage.
"There has been damage, and we will repair this damage, because we've spent four years building bridges and creating goodwill amongst Maori and Pakeha. We will continue doing that." Dr Sharples said the process had been difficult.
"It's been quite a traumatic experience for us, too long, it went on a bit long, we admit it could have been handled differently, but nevertheless, it has been handled and we're all pretty happy with it."
