Golly dolls have been spotted for sale under a "white Christmas" display sign.

Customer George Helon said he felt "shock and awe" when he saw the display at Terry White Chemists in Toowoomba, in south-east Queensland.

To make matters worse, the dolls were displayed underneath a sign reading: "Experience a white Christmas."

Golly were popular up until the 1970s and are widely understood to be a racist caricature of people of colour.

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A manager for the chemist told Sunshine Coast Daily there was no ill-intent, adding the dolls and sign would be separated.

A Terry White spokesman said the store had not made a connection between the connotation of the dolls and the sign.

Aboriginal activist, author and filmmaker Dr Stephen Hagan, said the display was offensive and demanded it be removed.

Mr Helon wrote on Facebook the display was a real "faux pas" and "should cause quite a stir".

But he said he did not believe there was any "ill intent".

"It was just inappropriately placed," Mr Helon told Sunshine Coast Daily.

The dolls have been regularly spotted in gift shops across country Australia over the past year.

"Toowoomba is the most racist city in Australia," author and activist Stephen Hagan told the Sunshine Coast Daily.

"Words can't describe this behaviour in the 21st century. I can understand it in the 1960s but to do it today is inexcusable."

The store's Managing Partner Alwyn Baumann offered an "unreserved apology" in a statement, saying the store had made a "regrettable error" with the display dolls, which they will "not stock in future".