The hotel heiress was at a boat party in St Tropez, in the South of France, when she appeared to make the infamous fascist gesture and put a finger on her top lip in apparent joke reference to the late dictator of Germany Adolf Hitler - who had a moustache.
Paris was wearing a red military hat when she made the apparent salute.
An onlooker said: "She stretched out her arm and raised her finger to her top lip, just like many people have done over the years to mock Hitler. Maybe she meant something else."
However, Paris` representative has denied she was making a reference to the Nazi party - which was responsible for the genocide of millions of Jews in the Holocaust.
A representative for the 29-year-old socialite said in a statement: "She was dancing and having fun with her arm up in the air, as she always dances like that, and was scratching her face when a photo was taken.
"These photos of Paris have been completely misrepresented. She did not make a reference to Hitler.
"The hat was not a communist hat, it`s a military-style hat from a club. Half of her family is Jewish and many of her friends are as well. She is extremely upset by these allegations."