Carphone Warehouse has suspended sponsorship of Celebrity Big Brother following allegations of racism towards actress Shilpa Shetty on the C4 show.
Shetty, 31, is an award-winning Bollywood actress
The company said its sponsorship would be removed from the current series "with immediate effect".
But Channel 4 chief executive Andy Duncan said at a press conference it would not be pulling the programme.
Government Chief Whip Jacqui Smith has urged people not to watch Big Brother due to the "racist bullying".
In the strongest condemnation of the show by a minister so far, she said the behaviour had been totally "unacceptable".
Ms Smith also attacked the programme-makers, saying that the editing had been wrong and that it was "shameful to make money and publicity out of that sort of thing".
Earlier, Mr Duncan said: "We cannot with certainty say that the comments directed at Shilpa have been racially motivated.
"This morning we have clarified with Shilpa, and unequivocally, she does not believe the treatment she has received is racially motivated.
"She thinks it is socially and culturally motivated," he added.
A record 30,000 complaints have been made over alleged racist remarks towards Shetty.
Three of Shetty's fellow housemates have been accused of racist behaviour, with Jade Goody, 25, receiving the brunt of public criticism.
On Wednesday's show, Shetty told housemate Cleo Rocos she feared she was being targeted because of her race. But the Bollywood star withdrew those claims on Thursday.
Goody joined the house with her mother and boyfriend Jack Tweed
"I don't feel there was any racial discrimination happening from Jade's end... I think that there are a lot of insecurities from her end but it's definitely not racial," Shetty said in the show's diary room.
Mr Duncan said they were constantly monitoring the show and that some of the contestants had been spoken to in the Big Brother diary room about how their comments might be perceived.
He said "it is unquestionably a good thing that the programme has raised these issues and provoked such a debate. These attitudes, however distasteful, do persist - we need to confront that truth."
Shetty and Goody will go head-to-head in the forthcoming Celebrity Big Brother evictions on Friday, with Goody 1-5 favourite to be evicted.
An explosive row between Goody, who first found fame on the non-celebrity version of Big Brother, and the Bollywood actress was broadcast on Wednesday.
Goody told fellow contestants Lloyd and Jo O'Meara that "fake" Shetty needed "a day in the slums". She added: "Go in your community and go to all those people who look up to you and be real."
Former beauty queen Lloyd has also hit out at the Bollywood star, saying Shetty should just "go home", adding that "she can't even speak English properly".
Carphone Warehouse chief executive Charles Dunstone said in a statement: "Our concern has rapidly mounted about the broadcast behaviour of individuals within the Big Brother house."
The company has paid out about £3m in sponsorship so far this series.
"We had already made it clear to Channel 4 that were this to continue, we would have to consider our position."
"Nothing we saw last night gave us any comfort," he added.
'Clash of personalities'
The Perfume Shop chain has also decided to withdraw sales of Jade's perfume from its shelves following the controversy.
However, a spokeswoman for Goody has denied she is a racist.
"It is clear to all that Jade and Shilpa are rubbing each other up the wrong way, but what is going on is nothing more than a clash of personalities between two strong characters," she said.
Lloyd, 23, was briefly Miss Great Britain last year
"Jade will be mortified when she comes out to learn that her conduct is being interpreted as racist. Anyone who knows Jade knows that she is not a racist."
Goody's mother Jackiey Budden, who was also a contestant on the show but was evicted last week, said: "Jade has never been racist, she is mixed race herself and suffered racist abuse as a youngster."
The Carphone Warehouse decision follows media watchdog Ofcom's demand that Channel 4 must respond to complaints about "racist" comments.
"Clearly what is happening is very serious," said Ofcom's chief executive Ed Richards.
He said Ofcom would write to Channel 4 shortly but "in the meantime, it is Channel 4's responsibility to respond to very significant viewer concerns".
More than 30,000 complaints have been made so far to media regulator Ofcom and 3,000 directly to the Channel 4.
However, the explosion of media coverage has seen audience figures rise, with 3.5 million viewers tuning in on Monday, 4.5 million on Tuesday and 5.2 million on Wednesday - equalling the highest figure for this series since the live launch.