The advertising regulator is to investigate a TV ad by Irish bookmaker Paddy Power that asks viewers to spot the "transgendered ladies" among a crowd of racing fans at the Cheltenham festival.
The Advertising Standards Authority received 360 complaints that the campaign is offensive towards transgender people.
Paddy Power and broadcaster BSkyB were accused of inciting transphobia with the campaign, which promised to make the festival's Ladies' Day "even more exciting by adding some beautiful transgendered ladies: Spot the stallions from the mares".
The ad goes on to show a series of shots of well-dressed racegoers with a voiceover guessing which are men and which are women.
The campaign, which broadcast on Sky Sports at the weekend, immediately drew criticism from the lesbian, gay, bisexual and transgender community.
LGBT Lib Dems Northern Ireland said Paddy Power has brought "shame on itself" and that the marketing tactic was in poor taste at a time when the UK government is trying to wipe out all forms of prejudice in sport.
"To use the subject of transgender in such a degrading and mocking way is a clear-cut case of transphobia," said the organisation on its website.
"What is worse is that the advert appeared during Sky Sports' very popular Soccer Saturday not just once but three times. So while we have the UK government running a campaign to wipe out transphobia in sport we have the nation's number one sports channel showing such an advert."
Paddy Power is no stranger to controversy, having recently featured Imogen Thomas in an ad campaign in a bid to capitalise on the publicity surrounding Ryan Giggs's affair.
In 2010 the bookmaker aired what was to become the most complained-about ad of the year featuring blind footballers kicking a cat.
The CheltenhamFestival.net website said the campaign was "tongue in cheek" but admitted that some people have found it "in poor taste".
Invited to add their comments, visitors to the site branded it "a disgrace" and "simply horrendous". "I have never seen such an insensitive hate ad," wrote Alex Kennedy.
Stephen Glenn wrote: "We have a government that is working to get homophobia and transphobia out of sport. Yet we have a betting company linking this gross advert to the name of the Cheltenham Festival. I don't think the staff for Cheltenham should be asking us what we think of this but should have condemned it outright themselves."
A spokesman for Paddy Power said that the ad campaign has generated "plenty of public response" which it says has been "healthily mixed".
"Several members of the UK transgender community are cast in the ad, and it was also cleared by Clearcast [which pre-vets TV ads] before airing," said Paddy Power. " This ad is simply a bit of mild-mannered fun in the runup to the Cheltenham festival."
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