The singlet with Australia’s flag and the slogan “If you don’t love it, leave” was on sale at two Woolworths stores in Queensland and New South Wales.
A spokesman said Woolworths would review its processes to “ensure this sort of error cannot happen again”.
Racial tensions in Australia have been high after recent terror raids.
Australia has also committed troops to the conflict in the Middle East.
Woolworths said the garment had been put on sale accidentally.
“It has come to our attention that two Woolworths stores were inadvertently stocking a singlet that we consider totally unacceptable,” the spokesman told the Australian Broadcasting Corporation.
“The singlet was not one we ordered. It was delivered to us in error and should never [have] been allowed on our shelves.
“The sentiment expressed on the singlet does not reflect the views of Woolworths.”
A customer posted a photo of the garment on a social media account and several dozen customers complained after the image went viral.
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