A Little Britain sketch has been called "explicitly racist and outdated" by Ofcom audience research.
It depicts Walliams using racist language to describe an Asian student.
As part of a study into audience expectations on potentially offensive content across linear TV and streaming services, television regulator Ofcom showed people a number of clips.
Participants said they viewed the Little Britain content as "explicitly racist and outdated, and felt that society had moved on".
"A few participants said they found it funny but seemed embarrassed to say this and could recognise why it would be offensive," the report said.
Others were also surprised that the episode was still available to watch on BBC iPlayer, while some said video on demand platforms (VoD) were more appropriate for the content as they give viewers a choice about watching or not.
For some, the content was considered too problematic, even for VoD, the report said.
On iPlayer, the episode currently features a warning before a viewer clicks on the show, reading: "Contains adult humour. Contains discriminatory language."
Viewers in the Ofcom study did not think the current rating was enough, suggesting that a warning about "the racist language and an explanation for why it was still accessible" was needed.
The BBC defended its decision to show the sketch, saying it is "intended to expose and ridicule some of the outdated prejudices and racism that still exists in parts of British society, which is more apparent when viewing the sketches within the context of a full episode, and across the series as a whole".
A spokesperson for the broadcaster said: "All jokes in our output are judged on context and intent.
"The programme is part of the BBC's comedy archive, and information is provided for iPlayer viewers about the inclusion of discriminatory language."
While some participants agreed the sketch was important as it reflects the beliefs of society at the time, others were concerned that it could normalise racist behaviours that could be repeated by young children.
"If I saw my daughter watching that and then mimicking it, I'd be horrified," one respondent, a father from Scotland, said.
He added: "If kids are watching it, they need it to be explained that that's not acceptable. It's passed off as acceptable behaviour towards fellow human beings that come from a different part of the world."
Other episodes of Little Britain have previously been removed from streaming services following criticism over the use of blackface.
Clips from Jimmy Carr's stand-up special His Dark Material, which is available on Netflix, Channel 4 show The Handmaid's Tale, Amazon Prime Video's The Boys and Disney animation The Aristocats, which is on Disney+, were also shown to respondents during the Ofcom research.