Shadow business secretary Chuka Umunna told the Independent on Sunday that a "virus of racism" runs through UKIP.
But Mr Farage described the claim as "complete and utter rubbish".
Asked if he was "in denial" about the issue, he said: "Your media obsession with attempting to paint UKIP out to be a racist party is something I'm getting really rather bored of."
Speaking in Hartlepool, he said that the focus on racist views within UKIP was discouraging voters from talking about the party.
'Soft' Labour
"This constant attempt... to try to paint UKIP out to be a racist party is wholly unjustified, grossly unfair and is leading people out there who agree with UKIP to almost feel shy about talking about it," he said.
He added that "if you want to look at unpleasant tactics, in terms of street campaigning, and outright, naked unpleasantness of a national/racial nature", then "you only have to see what was said to me when I was surrounded by a group of thugs in a street in Edinburgh".
He argued that polls did not properly represent UKIP's popularity in England.
"The polls are under-predicting us," he said.
"You're actually talking in areas like this (Hartlepool) a very, very significant percentage of the Labour vote that is by the day coming to UKIP.
"If we can ally that to getting non-voters and the people who've been disengaged... then get the tactical vote from the Conservatives, then these seats become winnable."
He said the Labour votes in the north of England were "incredibly soft", like a "rotten window frame" that if UKIP pushed, would collapse.
"We've got momentum up here in the north," he said. "Don't think it can't happen because it can."
The UKIP leader also told Radio 5 live the BBC should look to Scotland for racism in politics.
"The biggest racism I've seen in British politics is happening north of the border with the SNP," said Mr Farage. "Some of the anti-English hatred is reaching a truly astonishing level."
But SNP MSP Humza Yousaf said: "These disgraceful comments - which aren't just offensive to the SNP, but to the majority of people in Scotland on current polls - show exactly why the people of Scotland reject UKIP."
Nigel Farage says he is "really rather bored" with the media's "obsession" that depicts UKIP as a racist party.