In a statement, the U.S. State Department called for "unequivocal condemnation" by the Hungarian government of the bust of Miklos Horthy, who was president during World War II.
It was unveiled Sunday in front of the Hungarian Reformed Church in Budapest by the far-right Jobbik party.
"Those who organized and participated in the event, including members of Hungary's Parliament, promoted not only their own intolerance, but also a dramatically negative image of Hungary," the U.S. statement said.
"Although the significant number of counter-demonstrators showed there is strong opposition to the organizers' views, and members of the Hungarian government have expressed disapproval, an event such as this requires swift, decisive, unequivocal condemnation by Hungary's highest ranking leaders," the statement added.
Horthy allowed the Nazis to deport more than 500,000 Jews to death camps.
In a separate statement, Ronald Lauder, president of the World Jewish Council, charged some Hungarian politicians seemed to be ignoring a rising anti-Semitism in the country, saying they "seem to be concerned with their country's reputation internationally but deny that a problem exists within their country that needs to be dealt with urgently."
Lauder added that Jobbik is the third-largest political party in Hungary and that studies indicate nearly a third of voters under the age of 30 support the party's ideals.
A recent survey found 91 percent of Hungarian Jews believed anti-Semitism in the county had increased in the last five years, Lauder said.
He argued Jobbik was "actively undermining democracy" and urged Hungarian leaders to investigate the party to determine if its ideology ran counter to law and accepted norms.
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