The image, posted online on Monday by Cairns customer George Craig, showed a men’s singlet emblazoned with the Australian flag and the words “IF YOU DON’T LOVE IT LEAVE”.
Mr Craig told SBS he was shocked when he saw the found the singlet over the weekend.
“We were pretty shocked at both the sentiment and the corporate stupidity,” he said.
A spokesman for Woolworths told SBS the singlets, previously available in two stores, were "totally unacceptable".
"The singlet was not one we ordered," he said.
"It was delivered to us in error and should never been allowed on our shelves. We will review our processes to ensure this sort of error cannot happen again.
"As soon as we were made aware we immediately withdrew the product from our shelves. The sentiment expressed on the singlet does not reflect the views of Woolworths. Woolworths has a policy of 'Doing the Right Thing' which means we believe in fostering an environment where everyone is treated with dignity, courtesy and respect."
The singlet had already attracted criticism online, including a call from Greens MP Adam Bandt to pull the products.
Staffers for Mr Bandt reposted the image online, calling for it to be removed from shelves.
“Divisive and ridiculous,” they posted.
“These should be pulled immediately.”
It follows a similar backlash to a design pulled by Aldi in January.
The offending t-shirt, designed for Australia Day and bearing the words “Australia Established 1788”, was withdrawn from shelves amid racism claims.
Big W also removed products with a similar design in January.