The Sun newspaper said the 31-year-old left-armer was asked to leave Shooshh club in Brighton, East Sussex, after complaints from fellow clubbers.
Police said in a statement: "A 31-year-old man received a fixed penalty notice for being drunk and disorderly after being seen urinating in public near the Shooshh Club in Kings Road Arches, Brighton, around 4.13am on Monday."
Sussex said it was investigating the incident surrounding Panesar, who was in the England squad to play Australia in the third Ashes test last week but did not make the starting side.
"Sussex County Cricket Club can confirm that an incident took place involving Monty Panesar in the early hours of Monday 5th August," it said on its website (www.sussexcricket.co.uk).
"The matter is under full investigation and the club will make no further comment at this stage."
Panesar made his England debut in 2006 and has taken 164 wickets in 48 test matches. His last appearance was against New Zealand in March.
(Reporting by Max de Haldevang; Editing by John O'Brien)
