Caven Vines claimed during an interview in January 2015 the MPs knew about the abuse but did not intervene.
MPs Sir Kevin Barron and John Healey were awarded £40,000 each in libel damages at the High Court in London.
Mr Justice Warby said the "offensive and wrong" allegation had caused "real anger and distress".
Lawyers for the MPs said the allegation was "extremely grave" and could not have been more serious for politicians serving constituencies in the town, ahead of the General Election.
Sir Kevin, MP for Rother Valley, said he felt an anxiety and unease that he had not felt in other campaigns, which made it "very stressful". His integrity "had been called into question which was a very grave matter", the hearing was told.
Mr Healey, who represents Wentworth and Dearne, said the allegation had been damaging to his relationship with his constituents and had taken the focus away from things that needed to be done.
He considered they had left "a very dark stain on him and his integrity" which might never fully be removed, the judge was told.
Mr Vines, the former UKIP group leader in the town, claimed the pair had not suffered in any way, highlighting that both were returned to Parliament with an increased majority.
Judge Warby recorded the judgment after concluding Mr Vines had failed to put forward any defence which could possibly succeed.

The incident began on Tuesday morning when border agents encountered two men carrying backpacks five miles (8km) east of Sumas, Washington, in the US.
Authorities say agents interrupted an attempt to smuggle a load of MDMA, or ecstasy, from Canada to San Francisco.
Two others were arrested and accused of planning to transport the drugs.
On Tuesday morning, US border agents ordered the two men they encountered near the border to halt, officials said.
One of the men dropped his backpack, fired a weapon at the agents, and ran, according to a criminal complaint filed in US federal court in Washington on Wednesday.
The officers took the other man, identified as Jeffrey Laviolette, into custody immediately.
Canadian and US police searched for the fugitive on foot and by helicopter, putting up road blocks.
Nathan Hall, a Canadian citizen, was arrested by the Abbotsford Police Department in British Columbia early on Wednesday morning.
According to border patrol agents, the backpacks Mr Hall and Mr Laviolette were carrying contained a total of 58lb (26kg) of ecstasy.
Also inside one backpack was a California driver's licence with the name of William Nickerson but a picture of Nathan Hall, the complaint alleges.
Investigators later arrested a Bellingham, Washington woman, Kali Henifin, who they say planned to pick the two men up at the border. They also arrested her boyfriend, Ryan Lambert, who allegedly told officers he was to be paid $11,000 (Â£7,270) to drive the drugs to San Francisco.
Ms Henifin told agents they had been monitoring police radio communication on a mobile phone when they heard a report of a shooting and left the area, according to the complaint.
The three defendants in US custody face conspiracy as well as drug possession and distribution charges.
The wooded area a few miles east of a highway border crossing is a well-known smuggling route for drugs and firearms, and a spokeswoman for the US attorney for the Western District of Washington told the BBC smuggling prosecutions are "a large part of our practice".
An ex-UKIP councillor has been ordered to pay £80,000 in damages to two Labour MPs over remarks he made about the Rotherham's child abuse scandal.
[NEXT_CONCEPT]
Four people are in custody in the US and Canada after a suspected drug smuggler fired on US border agents and fled, sparking a day-long manhunt.