David Whipp was caught on domestic CCTV removing the flier in Barnoldswick.
The film of the Lib Dem group leader on Lancashire County Council and Pendle Council has been posted on social media.
Cllr Whipp, who is standing for re-election to both authorities, defended his actions as politicians from other parties reacted to the footage.
He said: "I haven't stolen anything. A flyer was stuffed in the top of a post box blocking the opening.
"I removed it to put my leaflet in. The flyer was returned to the letterbox and I have apologised to the householder. There were quite a few of the Conservative flyers thrown over people's gates. I didn't want it adding to the litter.
"Our volunteers are asked to make sure leaflets are pushed fully through letterboxes and not left hanging out of them, or just thrown onto people's paths," said Cllr Whipp, who is also deputy leader of Pendle Council.
Jenny Purcell, Conservative county council candidate for Pendle Rural, the seat being contested by David Whipp, said: “I’m saddened but not surprised by Cllr Whipp’s actions.
"It’s not fitting behaviour for the deputy leader of Pendle Council, or any politician for that matter. They’ve been fighting a dirty campaign this year, and his excuse makes no sense either.
"You can clearly see he steals the leaflet from the owner’s letterbox, stuffs it in his bag and walks away. I doubt very much he would have returned it if he hadn’t been caught out. It makes me question, how many other leaflets he’s been stealing? But, what saddens me most is that local politics is about helping local people and the community, not dirty tricks to win at all costs.”
Leader of Pendle Council Mohammed Iqbal, a Labour county council candidate elsewhere in the borough, said: "This video does look somewhat suspicious, but I am sure neither David Whipp nor the Liberal Democrats would stoop to stealing leaflets."
Philip Mousdale, Pendle Council's Returning Officer and Corporate Director, said: "We have received a complaint about this and it is being investigated by the police."