Pictures of the Princess Diana lookalike were splashed on billboards throughout China accompanied by the tag line "Feel the romance of British royalty. Diana underwear," Sky News reported Thursday.
The phony Princess Diana is pictured in bra and undies, wearing a tiara and necklace while playing a cello to a child.
Jealousy International, the underwear company using the Diana lookalike, is in China's southern Guandong province.
Princess Diana died Aug. 31, 1997, in a car crash in a tunnel in Paris, along with her boyfriend, Dodi al Fayed, and their chauffeur, Henri Paul.
On its Web site, Jealousy promotes its "Diana" with copy urging visitors to "Free your mind, free your style."
Britain restricts usage of images of the royal family for product promotion but lacks authority to act against foreign companies that do so.
Clarence House, which represents Prince Charles, did not comment on the ad, Sky News said.
Alan Berry, co-founder of the Diana Appreciation Society, called the ad a "blatant exploitation of a dead lady's name," e-zine First Post in London said.
Sam Chambers, a British journalist who works in China, told Sky News he "couldn't quite believe what I was seeing. ... It's all the more striking because today is the anniversary of her death."