-Fashion house Dior on Friday suspended John Galliano after police questioned its flamboyant star designer for allegedly assaulting a couple and using anti-Semitic insults in a Paris bar.
Police briefly detained Galliano on Thursday evening in Paris' fashionable Marais district after he allegedly verbally accosted a couple in a bar.
Galliano's lawyer strongly denied accusations of anti-Semitism.
"The House of Dior declares with the greatest firmness its policy of zero tolerance with regard to any anti-Semitic or racist statement or attitude," Dior boss Sidney Toledano said in a statement.
"Pending the outcome of the enquiry, Christian Dior has suspended John Galliano from all duties," said Dior, which is owned by Bernard Arnault, who also controls global luxury retailer LVMH.
The altercation erupted at the La Perle cafe, popular with the gay and fashion community in the historically Jewish neighbourhood, between Galliano and a couple next to him at around 9:00 pm, a police source said.
France's Europe 1 radio quoted the couple, a man and a woman, as alleging that Galliano said in English: "Dirty Jewish face, you should be dead" and "Fucking Asian bastard, I will kill you."
Police detained him for questioning and he was found to have consumed several times over the legal alcohol limit for driving. The designer was released and taken home by his driver pending possible charges.
German fashion magazine and website Sleek quoted witnesses as saying the altercation began when Galliano sat next to a couple at the bar who mistook him for a "bum when he tried to strike up a conversation with them."
The couple allegedly called Galliano "dirty and disgusting". The designer initially ignored them but then allegedly said to the woman: 'You're ugly and you're fucking bag is ugly too,' the German website reported.
"The boyfriend of the woman then got up from his chair and aggressively charged to threaten the designer. Galliano's bodyguard tried to quiet the situation, as did the staff from La Perle, but there was nothing more to do," the site said.
Galliano's lawyer Stephane Zerbib told AFP the designer "formally denies the accusations of anti-Semitism made against him."
Galliano "is not at all in this state of mind (and) will explain later," Zerbib said, adding that "legal action will be taken against those making such accusations."
"There was an altercation, Mr Galliano was verbally attacked, but at no point did he make any such insults, and we have witness testimony that backs this up."
Gibraltar-born Galliano, 50, took over the creative helm at Dior in 1996 and has been described as the driving force behind the label's 700 million euro annual profits.
He would have been focused this week on preparing his fall-winter collections for Christian Dior and his own label during next week's Paris Fashion Week.
It was not immediately clear what effect his suspension from Dior would have on the event.
The moustachioed designer has styled himself publicly as a neo-modern Edwardian dandy, assuming rock star poses at the end of his shows.
But backstage he is rather shy and more interested in discussing the technical aspects of his creations, of which he churns out an average of one a month.
Galliano, born to a British plumber father and a Spanish mother, has been billed as one of the most influential designers of our time.