The tweet featured an elf dangling a Twinings teabag over a model of a woman in the manner of a sex act. The tweet was accompanied by the caption: "How do you take your tea? One lump or two?."
The tweet formed part of a daily series showing the elf in a variety of lewd situations, including drawing breasts on an iced-over windscreen and playing strip poker.
Poundland said the campaign "connects with our shoppers", adding it was proud of the campaign which cost just £25.53 to create.
But in a statement, Twinings said: "We are aware of an image that is circulating that misuses our product. We had no involvement in this and it is obviously not reflective of our brand values."
Twitter users were shocked by the image, which has been retweeted over 3,000 times.
Author and activist for female representation in the media Caroline Criado Perez commented: "What a tedious attempt at outrage marketing. Hope it blows up in your face."
Charity Women's Aid responded on Twitter, writing: "How do you take your social media posts? One lump of outdated misogyny completely ignoring the current international agenda, or two?"
And Comedian Jason Manford asked: "Is it someone's last day at Poundland"?
When asked by a user if the retailer's account has been hacked, social media staff member Zoe replied: "The Poundland account has not been hacked. I am sorry that you feel this way and will share your feedback."