Addressing MEPs, Mr Verhofstadt suggested the Brexiteer was part of a “fifth column” working from inside the EU to destroy it.
The Belgian MEP launched the fiery attack on Mr Farage during the European Parliament group leaders’ opportunity to reply to Dutch prime minister Mark Rutte’s speech on the future of Europe.
Mr Verhofstadt said: “Inside the European Union we have a fifth column amongst us. I call them the cheerleaders of Putin: Farage, Le Pen, Wilders, and the friends of them are sitting here.
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“In fact doing just one thing, they take money from the Kremlin, they take the intelligence of the Kremlin.”
“These people have only one goal and that is to destroy Europe, to kill our liberal democracy,” he added.
Mr Farage hit back, branding Mr Verhofstadt’s comments as “baseless lies” and demanding he retract them.
On Twitter, former Ukip leader said: “This is a baseless lie.
“I have never received any Russian financial or political support.
“I suggest you withdraw.”
There is a long history of European Parliament spats between Mr Verhofstadt, leader of the liberal group, and Mr Farage, who leads the Europe of Freedom and Direct Democracy grouping of MEPs.
Most memorably, the pair’s war of words over Brexit escalated to a World Cup-themed slur in March.