Extremists have been blamed after a cartoon featuring the prophet Mohammed with a bomb in his turban was put up in a housing office in Oldham.
The cartoon was put up in First Choice Homes Oldham's offices
The cartoon, which has sparked protests from Muslims worldwide since it was published in a Danish newspaper last year, appeared at First Choice Homes.
Managers acted quickly to remove it and have begun an inquiry.
Oldham was hit by race riots in 2001 when youths from the mainly Muslim Asian community fought white youths.
A number of measures have since been carried out in an effort to improve race relations in the town.
First Choice Homes - which runs the town's council housing - said the matter had been reported to police.
Steve Yorke, its Director of Management and Operations, said many staff had been offended by the cartoon.
"They were upset and angry but it's our job to demonstrate to all staff that we will not tolerate offensive literature, we will not tolerate posters of this kind which are designed to divide our staff and set staff against each other in whatever way shape or form," he said.
Oldham Council said the cartoon could be part of an attempt by right-wing extremists to increase tension ahead of council elections in May.
Chief executive Andrew Kilburn said: "Working in a diverse community such as Oldham, we are constantly aware of the need for vigilance against groups who would wish to exploit controversy for their own ends.
The cartoon has provoked protests worldwide
"We will respond very firmly, as will all our partners, to issues which cause offence and which seek to damage the community cohesion for which we have worked so hard."
Greater Manchester Police said they were treating the incident "extremely seriously" and were worried the incident could affect "community cohesion".
A spokeswoman said: "Greater Manchester Police treat any incitement of racial hatred extremely seriously and robustly investigate any such incidents that are reported to us.
"We will not tolerate any acts of racial discrimination and are committed to working with local communities to tackle any issues that may arise."