The group Queers Against Israeli Apartheid says it is pulling out of this year's Pride Parade as a "challenge" to Mayor Rob Ford amid a simmering controversy over whether it should be included in the summer event.

In a Friday morning news release, the group said it would hold its own separate event during the parade this summer.

Ford said in March that the city should not fund the event if the group was included in the parade. "Taxpayers dollars should not go toward funding hate speech," he told the Canadian Jewish News at the time.

Queers Against Israeli Apartheid (QuAIA) said in its Friday statement that its event will try to "raise awareness of Israeli apartheid.

"Rob Ford wants to use us as an excuse to cut Pride funding, even though he has always opposed funding the parade, long before we showed up," said Elle Flanders, a member of the group, in a statement.

"By holding our Pride events outside of the parade, we are forcing him to make a choice: fund Pride or have your real homophobic, right-wing agenda exposed."

Term does not violate discrimination policy: city

The news comes two days after two members of council's executive committee, Deputy Mayor Doug Holyday and Coun. Giorgio Mammolitti, said they are opposed to providing funding to the festival if the group marches in the parade.

That's despite a report released Wednesday by city manager Joe Pennachetti that concluded the term "'Israeli Apartheid" does not violate Toronto's anti-discrimination policy and the inclusion of QuAIA in the parade should have no bearing on whether the festival itself receives funding.

The report was commissioned in the wake of an outcry over the inclusion of the group last year in the July 4 parade, the culmination of Pride Week, a 10-day festival celebrating sexual diversity in downtown Toronto.

On Friday Ford finally commented on the controversy and said he wouldn't be opposed to Toronto continuing its funding the annual Pride festivities, on one condition.

"Last year council agreed that if [Queers Against Israel Apartheid does not participate] they will get their money after the parade. And I don't see why we're going to change that agreement," he said.

A study commissioned by the city determined the festival generated $94.3 million in 2009 and 600 jobs.

The study also found the festival generated $4.1 million in municipal taxes that year.

Toronto contributed $123,807 to pride week last year, around five per cent of the festival's operating budget, according to the city. It also provided free garbage pickup and cleanup, estimated to cost around $250,000.

QuAIA claims Israel has an "apartheid system" that extends gay rights to only some people, and that the country's treatment of Palestinians constitutes apartheid. Jewish groups have dismissed that assertion as inaccurate and call the group discriminatory.