The move comes after members of the Islamic Defenders Front (FPI) raided boarding houses in Bandung where they believed gay people were staying and put up the signs.
"I have reprimanded the FPI for what they admitted they did," mayor Ridwan Kamil said in a text message forwarded to Reuters by an aide. "Provocative banners have to be taken down."
An FPI spokesman was not immediately available for comment.
The lesbian, gay, bisexual, and transgender community (LGBT) is largely accepted in Indonesia, particularly in urban areas.
But pockets of opposition remain, with a central government minister recently calling for a ban on LGBT organisations on university campuses.
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In the conservative province of Aceh, which implements sharia, or Islamic law, the LGBT community faces government-sanctioned discrimination. People can be sentenced to 100 lashes for engaging in gay sex.
The FPI is also known for harassing religious minorities like Christians and Ahmadiyahs, an Islamic sect, and have a track record of using violence.
Hundreds of FPI members forced the local government to tear down several churches in the conservative province of Aceh last year, claiming they lacked proper building permits.
