The campaign included an advertisement carried in national newspapers with Pistorius mocked up as an Academy Award statuette, causing a record 5,525 complaints and prompting the Advertising Standards Authority (ASA) to order its immediate withdrawal.
A spokesperson for Paddy Power said of the ASA ruling: "We like to tear up the rule book when it comes to our marketing. We don’t set out to offend, but we’re equally not afraid of pushing the boundaries and creating a debate – which our ‘Oscar Time’ ad undoubtedly did.
"It’s what the brand is all about so we certainly won’t be shying away from this approach any time soon."
The campaign focused on the ongoing high-profile trial of South African Paralympics gold medal winner Oscar Pistorius, who is accused of murdering his late girlfriend Reeva Steenkamp. Pistorius denies the charge.
The ASA recognised the coverage was of interest to the public, but added: "We considered it would therefore have been reasonable to foresee that serious or widespread offence was likely to be caused by placing an ad that sought commercial advantage based on that trial and which made light of the sensitive issues involved.
"Given the content of the ad, and the prevailing circumstances at the time of its publication, we concluded that it brought advertising into disrepute."
Paddy Power has run a number of controversial campaigns in the past, including ambushing the Ryder Cup with a skywriting stunt.