Taxi drivers have rejected allegations that green lights are used to show that the driver is Irish.
In response to a story this week on TheJournal.ie, the National Transport Authority said such lights do not comply with signage regulations and could incur a fine of up to €250.
But a spokeswoman said that enforcement officers had not noted this as a widespread problem.
Minister for Transport Leo Varadkar said that he had only become aware of the practice, but had seen stickers on taxis to the same effect. He said his personal view was that it was wrong.
"I've only heard about this in recent days. The green light does not form part of the official sign, so it's not permitted, and the green lights do have to be removed.
"I have seen stickers on taxis, informing people that the taxi is 'Irish', so presumably they're trying to inform people that the driver is Irish. I think it's inherently racist and I think it's inherently xenophobic."
But Jim Waldron of the National Private Hire and Taxi Association said some drivers had simply adopted a system used in Spain where a green light shows the driver is for hire.
"Our members have expressed serious concerns with Minister Varadkar's comments that taxi drivers displaying a green light on their taxi sign are inherently racist and should be removed," the Secretary of Tiomanai Tacsaí na hÉireann, Alan Brennan, said.
"We find it incredible that the minister has no real knowledge of our industry and is making off-the-cuff remarks such as these.
"These lights are used for display purposes during daylight hours and are readily available for purchase to any taxi driver of any nationality."