The BBC will not play Ding, Dong The Witch Is Dead - a big seller following the death of Lady Thatcher - in full during this weekend's Radio 1 chart show.
The song has shot into the top five after an online campaign encouraged opponents of the late prime minister to buy it.
A spokesman for the corporation said: "The BBC finds this campaign distasteful but does not believe the record should be banned.
"On Sunday, the Radio 1 Chart Show will contain a news item explaining why the song is in the charts, during which a short clip will be played as it has been in some of our news programmes."
Radio 1 controller Ben Cooper said there were "very difficult and emotional arguments on both sides of the fence".
He told BBC Radio 1's Newsbeat: "Let's not forget you also have a family that is grieving for a loved one who is yet to be buried."
Writing in his BBC blog, Mr Cooper said he had been "caught between a rock and a hard place".
He said: "On one side there is the understandable anger of large numbers of people who are appalled by this campaign.
"On the other, there is the question of whether the chart show - which has run since the birth of Radio 1 in 1967 - can ignore a high new entry which clearly reflects the views of a big enough portion of the record-buying public to propel it up the charts.
"Above all, in the middle of this furore is a grieving family.
"Nobody at Radio 1 wishes to cause offence but nor do I believe that we can ignore the song in the chart show, which is traditionally a formal record of the biggest-selling singles of the week. That in turn means that all songs in the chart become an historic fact.
"I've therefore decided exceptionally that we should treat the rise of the song, based as it is on a political campaign to denigrate Lady Thatcher's memory, as a news story.
"So we will play a brief excerpt of it in a short news report during the show which explains to our audience why a 70-year-old song is at the top of the charts. Most of them are too young to remember Lady Thatcher and many will be baffled by the sound of the Munchkins from The Wizard Of Oz.
"To ban the record from our airwaves completely would risk giving the campaign the oxygen of further publicity and might inflame an already delicate situation."
An online campaign has driven sales of the song - which lasts less then a minute and is a clip of a longer piece from the Wizard of Oz - and the latest placings released by the Official Charts Company show it had sold 20,000 copies and was at number four on Wednesday night.
The late former prime minister divided opinion and while many have mourned, some have seen her death as a cause for celebration, prompting a download surge for the song.
John Whittingdale, chairman of the Culture, Media and Sport select committee, has said the song should not be played.
He said: "This is an attempt to manipulate the charts by people trying to make a political point.
"Most people find that offensive and deeply insensitive, and for that reason it would be better if the BBC did not play it."
But another Tory member of the select committee, Philip Davies, said it should be played.
He described the campaign as "pathetic", but added: "It's not for the BBC to define on what basis something is in the charts."
The BBC has in the past refused to play hit songs if they were regarded as offensive.
The song was at number three this morning having sold about 12,000 fewer copies than the current chart-topper Need U (100%) by Duke Dumont, but with the final sales not coming in until midnight tomorrow, it could still take top spot.
Meanwhile, union members of Baroness Thatcher as "an evil person" who ruined communities across the UK.
Delegates cheered during the opening remarks at Unison's Scottish health conference in Glasgow.
Marking the former Tory leader's death, Unison's Scottish health committee chairman Tom Waterson said: "Margaret Thatcher, inconsiderate to the last. If she'd died this morning, what a start to the conference that would have been.
"There has been talk about how Thatcher divided the nation. The way I see it is she divided it into those who were joyous and those who were elated when she died.
"I don't go along with all the hypocrites, the politicians who stood up in the Houses of Parliament and said how good a woman she was, how she shaped a nation."
He blamed her for ruining communities with controversial policies such as the poll tax.
The former prime minister was also accused of "leaving soldiers for dead" on both sides of the Falklands conflict and of allowing men to die in jail in Northern Ireland.
"She was an evil, evil person. Colleagues, shed no tears for Margaret Thatcher. She never shed any tears for us or our families," he said to cheers from the audience.
By the time Mrs Thatcher stepped down as leader in 1990, she had polarised opinion in Scotland.
On the night of her death on Monday, a crowd of 200-300 people assembled in Glasgow's George Square where in 1989 protests to the introduction of the poll tax took place.
Elsewhere, First Minister Alex Salmond and broadcaster Andrew Neil have formally confirmed their intention to attend Baroness Thatcher's funeral, Downing Street said today.
Others who have accepted invitations include US politician Newt Gingrich, former Australian prime minister John Howard, advertising magnate Maurice Saatchi and classical singer Katherine Jenkins.
Internet pioneer Sir Tim Berners-Lee, actor and singer Michael Crawford and Canadian prime minister Stephen Harper are also on the list of guests.
The latest high-profile figures are among about 2,000 people expected to attend the funeral at St Paul's Cathedral next Wednesday. Current and former politicians will also be in the congregation.
But ex-Soviet leader Mikhail Gorbachev and Nancy Reagan have said health problems will keep them away.
Argentina's president, Cristina Fernandez de Kirchner, has been left off the list after a series of provocative comments about the Falkland Islands.
Number 10 said last night that the guest roster had been drawn up by Lady Thatcher's family and representatives with the assistance of the Government and the Conservative Party.
More than 2,000 invitations were expected to be sent out, with a total of 2,300 people set to pack St Paul's.
Confirmed guests
The Queen and Duke of Edinburgh;
Prime Minister David Cameron;
Former prime minister Tony Blair and his wife Cherie;
Former prime minister Gordon Brown and his wife Sarah;
Former prime minister Sir John Major;
Labour leader Ed Miliband;
First Minister Alex Salmond
Welsh First Minister Carwyn Jones;
Northern Ireland First Minister Peter Robinson;
American Republican politician Newt Gingrich;
Former Australian prime minister John Howard and his wife Janette;
Internet pioneer Sir Tim Berners-Lee;
Actor and singer Michael Crawford;
Classical singer Katherine Jenkins;
Tory donor Lord Harris and his wife, Lady Harris;
Advertising magnate Lord (Maurice) Saatchi;
Metropolitan Police Commissioner Sir Bernard Hogan-Howe;
Broadcaster Andrew Neil;
Former cabinet minister Michael Portillo and his wife Carolyn Eadie;
Former president FW de Klerk of South Africa;
TV presenter and journalist Jeremy Clarkson;
Lady Thatcher's former foreign policy adviser, Lord Powell of Bayswater;
Former foreign secretary Lord Carrington;
Prime minister Stephen Harper of Canada;
Former prime minister Brian Mulroney of Canada;
Director of The British Forces Foundation Mark Cann;
Archbishop of York Most Rev John Sentamu;
Broadcaster Sir David Frost;
Broadcaster Sir Trevor McDonald;
Lyricist and author Sir Timothy Rice;
Actress June Whitfield;
Actress Joan Collins;
Designer Anya Hindmarch;
Dame Shirley Bassey;
Lord and Lady Lloyd Webber;
Lord and Lady Archer;
Former Prime Minister Mahathir of Malaysia;
Among the invitees yet to confirm are the whole current cabinet and all surviving members of Lady Thatcher's cabinets.
All surviving US presidents, including Barack Obama, have been invited to attend, as has former US secretary of state Hillary Clinton.
A representative of Nelson Mandela has been invited to attend.
European Commission President Manuel Barroso has also been invited.
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