An advertising campaign launched on the London Underground during gay pride week earlier this month has caused a political storm in South Carolina.

Posters, displayed at Leicester Square and Covent Garden tube stations in the two-week period surrounding the festival, were designed to promote a gay tour operator and to increase tourism to various US destinations noted for being gay-friendly.

News of the campaign and a poster with the tagline "South Carolina is so gay" reached the state late last week where it was condemned by Senator David Thomas. The state employee who approved the campaign has since resigned and Senator Thomas is calling for an audit of the tourism department's advertising budget, which this year runs in excess of $10m. The tourism department has also refused to pay the $5,000 fee for appearing in the campaign and has asked that the advertising be removed.

"South Carolinians will be irate when they learn their hard earned tax dollars are being spent to advertise our state as 'so gay,'" said Senator Thomas.

However, Ian Johnson, chief executive officer of Out Now, the gay marketing agency that created the campaign, claimed that the South Carolina Parks, Recreation and Tourism Department (SCPRT) "chased us to be included in the campaign late on. We had to buy extra panels at Covent Garden to include South Carolina. In addition, SCPRT hosted Andrew Roberts, the CEO of Amro, in South Carolina so that he could check that there were sufficient gay-friendly aspects to the destination before including it in the campaign. Places like Charleston and Myrtle Beach have quite strong gay and lesbian communities."

Armo Worldwide said they took the idea for the campaign to "several US tourism boards" late last year and "received a very positive response". They say the individual boards paid a cut-price fee to be featured, while they covered all other costs in a cooperative-style marketing campaign.

Other US destinations featured in Amro Worldwide's campaign - including Washington DC, Las Vegas, Boston and Atlanta – have not reported any such backlash. The Boston poster, which picked up on its status as capital of the first US state to legalise same-sex marriage, is thought to be expecting a huge gay-tourism boost if a ruling goes ahead to allow out-of-state gay marriages there as well.

Amro claim the adverts are enhancing the positive associations with the word "gay". "The expression 'That is so gay" [is often used] as a form of put down, not of gay and lesbian people directly, but rather as a general way to suggest that for something to be "gay" is negative or bad … This campaign will 'reclaim' the term 'so gay'," says their website.

South Carolinians, however, remain unconvinced. "We're so gay?" asked one baffled resident when the story was put to him by a local television journalist. "Nah, wrong state. Go to California."