Swiss watchmaker Swatch has said authorities in Malaysia raided its stores and confiscated 164 watches that were part of its Pride Collection.
The watches were seized across various malls in the country on 13 and 14 May because they "bore LGBT connotations", the brand said.
The watches come in a choice of six colours, matching those on the Pride flag, and have two rainbow loops on their straps.
Swatch Group chief executive Nick Hayek said in a statement that the brand "strongly contest" that the watches are "harmful".
He added: "We strongly contest that our collection of watches using rainbow colours and having a message of peace and love could be harmful for whomever.
"On the contrary, Swatch always promotes a positive message of joy in life. This is nothing political.
"We wonder how the Regulatory and Enforcement Division of the Home Ministry will confiscate the many beautiful natural rainbows that are showing up a thousand times a year in the sky of Malaysia."
In the predominantly Muslim country, same-sex relationships are illegal and people could face up to 20 years in prison if the rules are broken, for sodomy under Islamic laws.
Read more from Sky News:
Nazi flag seized after truck crashes into security barriers near White House
New Zealand's ratio of sheep to people falls to record low
Ireland to become first country in the world to put health warnings on alcohol
Swatch said it has resumed selling the Pride Collection watches and that its legal department is looking into the seizure.
Gay rights group Jejaka condemned the confiscation of the watches, saying it showed "a deeply unsettling level of intolerance".
"It is more than a matter of colourful watches," it said in a statement.
"It's about respect for diversity, freedom of expression, and, most importantly, love."
Home Minister Saifuddin Nasution has told the AP news agency that he will wait for a full report into the matter before issuing a statement.
It follows the opposition Pan-Malaysian Islamic Party recently criticising a scheduled concert in November by Coldplay because of its support of the LGBT movement.