Mr Sarwar claimed that Labour councillor Davie McLachlan told him he could not support his leadership bid because "Scotland wouldn't vote for a brown Muslim P**i".
Mr McLachlan has insisted the allegations are "false" and an internal Labour disciplinary process found there was no case to answer this week.
But the Glasgow MSP revealed in a statement today that he was given just four days notice of the National Constitutional Committee (NCC) hearing into his case on Monday. When he arrived to give evidence he was told he could not appear as he had not provided two weeks notice of his intention to provide testimony. "I was asked to leave and was unable to provide any evidence," he said. "The UK Labour NCC panel subsequently ruled that there was no case to answer without any verbal evidence being taken."
It had taken over 15 months for the NNC to hear the case. Labour leader Richard Leonard later voiced concerns about the party's disciplinary procedures as a result of the case.
"I am left with the sad impression that Islamophobia is one of the last acceptable forms of prejudice," Mr Sarwar added.
"It’s now clear that the Labour Party’s disciplinary process is deeply flawed and not fit for purpose.
"It is not fair on either the complainant or the accused for the process to last 15 months. It is not transparent if witnesses are not adequately informed and then barred from providing evidence."
He has now called on the UK Labour Party to provide a full explanation on its handling of the case and called for Scottish disciplinary issues to be handled in Scotland.
Mr Sarwar reported that the remarks were made during the contest to succeed Kezia Dugdale as Scottish Labour leader in 2017.
Mr McLachan welcomed the findings of the NCC and said he would never recover from the stress that the allegations had caused his family
He said: "My reputation and character have been badly maligned by the false accusations that were made against me but there is some consolation for me in the fact that there are many, many people who know for sure that I never have, and never would, harbour racist views."