A Hindu group protested today outside the headquarters of Malaysia's top Islamic insurer after a company official forbade Muslims from extending traditional holiday greetings to ethnic Indians.

Some 150 demonstrators rejected an apology issued by Takaful Malaysia in a bid to defuse the furore, and demanded it punish the official and educate employees on the different religions practised in multicultural Malaysia.

Mohd Fauzi Mustaffa, head of the Islamic law department at Takaful Malaysia, last week issued an email warning Muslim staff to refrain from greeting their Hindu colleagues ahead of this weekend's Deepavali festival.

Fauzi said because the festival involved the worship of Hindu deities, issuing greetings was against the tenets of Islam.

"The email sent by Takaful is unacceptable, especially in a multi-racial, multi-cultural society like Malaysia," said Charles Santiago, spokesperson for Group of Concerned Citizens, which led the protest.

"There must be policies put in place within Takaful to make sure the same thing does not re-ocurr. That is when the apology is serious, otherwise it is a joke," he told reporters.

This year, Deepavali, the Hindu festival of lights, falls three days before the Muslim Aidil Fitri, which marks the end of the fasting month of Ramadan.

Malaysians have dubbed the extended holiday season "DeepaRaya", but the melding of the festivals has drawn fire from Muslim leaders, who condemn joint celebrations as blasphemous.

"This is against the tenets of Islam," said top cleric Harussani Zakaria, the mufti from Perak state and also a member of Malaysia's National Fatwa Council.

Later in the day Mohd Fauzi withdrew his inflammatory circular and apologised to all parties.