Witchery has vowed to appeal a decision which has cast a shadow over its childrenswear line.
The advertising watchdog has upheld complaints a campaign for WitcheryKids breached codes around the sexualisation of children.
The Advertising Standards Board received complaints about a creative featuring a girl dancing and listening to music.
Complaints alleged the still video frame was shot on a low angle that focuses on the model's crotch.
The Board ruled in favour of complainants.
"The board noted that in the current advertisement the girl is wearing a short skirt and has her legs apart and considered that this pose is more adult than child-like.
"The majority of the board considered that overall the image amounted to a depiction of a child which is sexualised and is therefore not appropriate."
Parent company Country Road Group strongly defended its policies on working with children and vowed to fight the decision.
"CRG always ensure that the WitcheryKids’ product range and brand campaigns reflect community standards and portray children in a dignified and respectful manner," it said in a statement to the ASB.
"CRG do not consider the imagery to be sexual in nature nor does it imply that children are sexual beings."