Welsh Labour's deputy leader Carolyn Harris is facing pressure to quit her frontbench Westminster role as shadow equalities minister.
Labour AM Jenny Rathbone said she should stand down to "clear her name", after a trial heard she used the term "dyke boots" to refer to the footwear of a former aide.
There have been calls from a senior Labour activist for her suspension.
Mrs Harris said: "I honestly do not remember making such a comment."
The row follows a court case where Jenny Lee Clarke, a former aide to Mrs Harris, was cleared of fraud.
During the trial at Cardiff Crown Court, the jury heard the Swansea East MP had said to Ms Clarke to "look at your dyke boots" after finding out she was gay.
Mrs Harris told the court she "didn't remember" using the term, but if she had it would have been "office banter" and denied assaulting her.
But she has faced criticism from members of Welsh Labour including Welsh Government minister Hannah Blythyn, who was one of the first openly gay members of the Welsh cabinet, who said she was "disappointed and saddened" by Mrs Harris' use of the term banter.
"It's never banter - it's homophobic language," she said in a Twitter message that received support from a number of other Labour AMs.
In a statement released on Friday, Mrs Harris said it was "clumsy language" adding "I understand that banter was an entirely inappropriate - indeed offensive - word to use."
But now senior Labour activist Jon Lansman has asked leader Jeremy Corbyn to suspend her and has demanded an investigation.
Mr Lansman wrote to Labour leader Jeremy Corbyn and general secretary Jennie Formby on Wednesday calling for Mrs Harris to be suspended from the shadow ministerial post.
The member of Labour's ruling body the National Executive Committee said: "I don't believe that Carolyn Harris can continue as a frontbench spokesperson on equalities when she has been accused in open court with supportive evidence of her former MP and then employer of homophobic abuse."
"There must be an immediate investigation of the alleged assault by the Labour Party," he said.
BBC Wales has been told that Wales' First Minister Carwyn Jones has full confidence in Mrs Harris, while Mr Corbyn is also understood to be fully supporting Mrs Harris.
Neither Welsh or UK Labour have made any official statement.
Ms Clarke, who had been Mrs Harris's office manager, was accused of forging her signature after she was elected to give herself a £2,000-a-year pay rise and lower her working hours.
She was cleared after the trial heard Mrs Harris frequently made comments about Ms Clarke's choice of clothes and hairstyles.
A jury at Cardiff Crown Court heard that the alleged incidents occurred while Mrs Harris and Ms Clarke worked for previous Swansea East MP Sian James.
Mrs Harris was elected deputy leader in April.
Speaking on BBC Radio Wales, Labour AM Jenny Rathbone said had all these issues been known about before the election she thought "it would have affected the number of people who put in their votes for Mrs Harris".
But Jeremy Miles, who was also one of the first openly gay Welsh Government cabinet members under Carwyn Jones's leadership, said while the use of banter to dismiss derogatory language is wrong, Mrs Harris was "a good LGBT ally".
In her statement Mrs Harris said hearing the alleged comments" "struck me to the core" - but apologised "unreservedly and unequivocally" for using the word banter that she admitted was "clumsy language".
"In looking to answer - honestly - I said that in the context of our time working together that 'if I did it would have been banter'.
"I was trying to express that I would not want anyone to feel as if I were targeting them because of their sexuality, something I would never do."
"I can only hope that my actions to support the LGBT community in recent years as an MP and in the future will help heal any hurt," she added.