Appearing on Newsnight, the Welsh Party leader claims Mr Bolton has lost “touch with reality”.
Neil Hamilton said: “Well I think it is a foolish decision, I have no reason to believe the Party will support him but I think he will go down to an overwhelming defeat which will add further humiliation to his recent experiences.
“I think it is all very sad. We tried the men in grey suits now perhaps it’s time for the men in white coats.
“He seems to me to have lost all touch with reality.”
It comes after Mr Bolton refused to step down as leader amid an outcry over his ex-girlfriend’s “racist” comments about Meghan Markle.
The Welsh leader said Mr Bolton had lost his mind
Jo Marney was accused of racism after she sent texts saying Ms Markle would “taint” the Royal Family and that she didn’t find black people attractive.
Mr Bolton received a vote of no confidence by the Party’s national executive but he still refused to go.
Deputy leader Margot Parker resigned her position in protest at Mr Bolton’s refusal to go.
Mr Bolton has only been Party leader since 2017 and is one of many leaders to hold a short tenure as Ukip’s leader after Nigel Farage’s departure.
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Mr Hamilton told BBC Radio Wales: “Of course he should go – it’s a ridiculous situation to be in.
“He’s made himself into a ludicrous figure by his own poor judgement and he should get out of the way and allow us to get on with rebuilding the party.”
He added there should be a period of stability but insisted he did not want to be considered for leadership.
The Welsh leader added: “I’ve got a full-time job leading the Ukip group in the Welsh Assembly.
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“We are the only Parliamentary force that Ukip has got – Wales is Ukip’s shop window to the world.
“We’re doing a professional job in the Welsh Assembly and I think the rest of the party needs to follow our lead.
“I think what we need in Ukip now is more of a collective leadership. Nigel Farage was a massive, charismatic, dominating figure, and when he removed himself from the scene I think that left a vacuum which we’ve struggled to fill.”
Even former leader Nigel Farage slammed the current leader on his LBC radio show when Mr Bolton appeared as a guest.
Neil Hamilton claims he is not vying for leadership
Farage asked whether Mr Bolton’s decision had been “a little bit selfish” would damage the party.
Mr Bolton replied: “The last thing I need is to go for this. I am doing this because I think it is in the interest of the party and the nation.
“Indeed these resignations don’t help anything. If the people resigning had any interest in the interests of the party then they would actually be continuing their job.”
After the interview, Nigel Farage then opened up on what he thought of Mr Bolton refusing to stand down.
Even Nigel Farage took a swipe at Henry Bolton on his radio show
He said: “I think there are things that Henry has done over the course of the last few weeks that have not been very wise, particularly the way he has handled the media.
“If you tell everybody that you have broken up a relationship as a result of racist tweets, and are then photographed at a smart London club holding hands and you go home by train together, that really is pretty stupid.
“It was that incident more than anything else that made people lose confidence in him.
“But am I pleased that he is ignoring the NEC and going to push this to an extraordinary general meeting? Yes, I am. I am very very pleased indeed.”