The Vatican said Thursday the image is "offensive not only to the dignity of the pope and the Catholic Church, but also to the sensibilities of believers."
Benetton withdrew the ad immediately after its debut Wednesday once the Vatican denounced it as an unacceptable provocation.
Benetton had said its "Unhate" campaign was aimed at fostering tolerance, but the Vatican's daily newspaper Thursday called it "an insult to believers in the name of profit."
The campaign's fake photos feature a half-dozen purported political nemeses in lip-locked embraces, including President Barack Obama and Venezuela's Hugo Chavez, Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas, and North Korean leader Kim Jong Il and South Korean President Lee Myung-bak.
The photo of the pope kissing Sheik Ahmed el-Tayeb of Cairo's al-Azhar institute, the pre-eminent theological school of Sunni Islam, was on Benetton's website all day Wednesday but was pulled about an hour after the Vatican's protest.
Al-Azhar suspended interfaith talks with the Vatican earlier this year after Benedict called for greater protections for Egypt's minority Christians.
Shock ads have long been a part of Benetton's publicity strategy, with photographer Oliviero Toscani's famous campaigns for them featuring death row inmates and people dying of AIDS.
In a statement, the Treviso, Italy-based clothing manufacturer said it was sorry that its image had offended the faithful and that as a result "we have decided with immediate effect to withdraw this image from every publication."
The other images, including the one of Obama, are still on its website.