Millwall are considering taking legal action after Westminster City Council used the Championship club's badge on an illustration of a Ku Klux Klan member.
The image appeared in a children's anti-racism booklet distributed in primary schools in the local area about the life of former footballer Paul Canoville, who was the first black player to play for Chelsea.
It shows a cartoon figure wearing a white hood and robes, which is typically associated with the white supremacist group, with the outfit also bearing Millwall's crest.
The figure is imposed next to a photograph of Canoville, with a speech bubble coming from the ex-player that reads: "Racism never went away. I was badly abused in a reserve match at Millwall, but then I could show the racists my 1984 2nd Division Champions medal!"
On Thursday, Westminster City Council apologised to the club for the "improper use of their logo and for any offence caused".
"We accept the use of this image was an insensitive way to illustrate the historic problem of racism within football," it said.
"The booklet has been removed from circulation, and we are reviewing processes to ensure this doesn't happen again."