Mr Hamilton defeated UKIP Wales leader Nathan Gill in a vote of the party's seven newly-elected AMs on Tuesday.
Newport branch chairman James Peterson told BBC Wales Mr Hamilton's victory could take the party "backwards".
Mr Hamilton said the party had been going backwards, but he will "create the momentum to push it forward".
UKIP's Islwyn candidate Joe Smyth said the former Tory MP "ticks all the boxes for being a leader".
Mr Gill remains leader of the party in Wales, having been appointed by Nigel Farage in 2014.
Deep divisions have been exposed within UKIP Wales since its AMs met to elect their group leader.
One senior party member said he "can't see Mr Hamilton uniting the party".  Another said he was "making enemies".
Mr Peterson told Sunday Politics Wales the result of Tuesday's vote meant those voters who backed the party at the election had been "misled".
"I think it's reasonable for people to have presumed Nathan Gill would be in charge and I think that's what people went out and voted for," he said.
Other members welcomed Mr Hamilton's election, accusing Mr Gill of being "weak".
Mr Smyth said: "I think it's a very good thing for UKIP having Neil elected as the group leader.
"As a person he's a true gentlemen, he brings a wealth of experience and knowledge and in my books he ticks all the boxes for being a leader."
UKIP's electoral success in Wales could be "undone" by Neil Hamilton becoming leader of the party's assembly group, a UKIP branch chairman has said.