The advertising watchdog has banned a Home Office advert telling illegal immigrants to go home, saying it was misleading.
But the Advertising Standards Authority (ASA) cleared the campaign of being offensive and irresponsible.
The campaign saw two vans drive around London for a week in July, carrying the message "Go home or face arrest."
The ASA said the posters on the vans referred to inaccurate arrest statistics.
It received 224 complaints about the vans from individuals, campaign groups, legal academics and the Labour peer Lord Lipsey. Some critics said the slogan was reminiscent of language used by the National Front in the 1970s.
During the campaign, the advertising vans drove around the London boroughs of Barking and Dagenham, Redbridge, Barnet, Brent, Ealing and Hounslow, some of the most diverse areas of the capital where it is thought a lot of illegal immigrants live and work.
The poster displayed a picture of handcuffs and read: "In the UK illegally?... GO HOME OR FACE ARREST."
ASA chief executive Guy Parker told BBC Radio 4's Today programme the campaign was considered unlikely to cause "widespread offence".
But he said the phrase "go home" was "reminiscent of the racist slogan" and "clearly carries baggage".
He added: "It clearly upset some people and I think it might be wise, if the government uses the poster van again, to perhaps think about using a different phrase - like return home."
The campaign split the coalition, with Deputy Prime Minister Nick Clegg saying Liberal Democrat ministers had not known about them in advance.
Business Secretary Vince Cable said the campaign was "stupid and offensive".
The advert said there had been 106 arrests in the area in the past week and encouraged illegal immigrants to contact immigration officials for information on how they could be helped to leave the country.
In its ruling, the ASA said the reference to the number of arrests was misleading because it did not relate to those detained in the specific areas where people would have seen the vans.
It said the figure referred to arrests which occurred across a large part of north London more than two weeks before the campaign began.
"The ad must not appear again in its current form," said the ASA report.
"We told the Home Office to ensure that in future they held adequate substantiation for their advertising claims and that qualifications were presented clearly."
But it dismissed complaints that the slogan "Go home" had been offensive or irresponsible. It said that, while the phrase had been used in the past to attack immigrants, the Home Office was now using it in a different context.
The report said: "We concluded that the poster was unlikely to incite or exacerbate racial hatred and tensions in multi-cultural communities.
"It was not irresponsible and did not contain anything which was likely to condone or encourage violence or anti-social behaviour."
'Not used again'
Ministers have not clarified if or when the ad vans will be used again and they have not published any data on whether the campaign led to an increase in illegal immigrants turning themselves in.
However, a Home Office spokesman said: "We are pleased the ASA has concluded that our pilot was neither offensive nor irresponsible.
"We have always been clear that this campaign was about encouraging illegal immigrants to leave the country voluntarily and was not targeted at particular racial or ethnic groups.
"In respect of the ASA's other findings, we can confirm that the poster will not be used again in its current format."
But shadow home secretary Yvette Cooper said: "The Ad vans sent out by the Home Office were a divisive gimmick. It's time the Home Secretary promised that she will ditch those Ad Vans and never again authorise Government slogans that are reminiscent of the 1970s National Front."