Mr Kipling had already withdrawn the ad from television screens last year after complaints against the spot began to mount up.
It was created by Saatchi & Saatchi as part of a series of humorous ads, and despite their success Manor Bakeries last week said it was reviewing the £3m creative account for Mr Kipling.
The nativity play spot starts with a scene that appears to be in a hospital, with a woman called Mary in labour and crying out in pain. However as the camera draws back it turns out she is not in a hospital but is instead on a stage surrounded by children and being watched by a horrified audience.
A woman turns to a vicar, who is watching the performance while eating a mince pie. She asks in a concerned voice if Mr Kipling has ever directed a Nativity play before. The vicar, who is unfazed by the performance, responds: "No, but he does make exceedingly good cakes." The ad ends with a voice shouting out "It's a girl."
Ofcom said that the majority of the 797 complaints said that they were deeply offended by the ad, which appeared around Christmas, objecting to what they felt was a mockery of a holy event in the Christian calendar. Others felt that the scene was too graphic and could upset children, while others said it was demeaning to women because it trivialised the act of giving birth.
The regulator rejected the complaints about the childbirth scenes and said that it did not consider it to be demeaning to women. However it said: "In view of the strength of feeling articulated by a very large number of viewers we felt the advertisement was in breach of the Advertising Standards Code Rule 6.1 (Offence)."
Ofcom said that it welcomed the decision to withdraw the ad agreeing that it was appropriate under the circumstances.
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