A New Zealand bar manager has appeared before a Myanmar court accused of insulting religion by using an image of the Buddha to publicise a cheap drinks night.

The offending poster, which featured a psychedelic mock-up of the Buddha wearing DJ headphones, has prompted outcry in predominantly Buddhist Myanmar, which is grappling with surging religious nationalism.

Around a dozen monks and hardline Buddhists gathered outside the Yangon court shortly after Philip Blackwood, 32, was led into the building in handcuffs.

Approximately two dozen riot police armed with batons were standing by, in a sign of the incendiary nature of questions of religion in the nation.

It was Mr Blackwood's first court appearance since he was denied bail last week along with Myanmar nationals Tun Thurein, 40, who owned the bar, and manager Htut Ko Ko Lwin, 26.

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The trio face possible jail terms if found guilty of breaching the Religion Act with the contentious poster, which was quickly withdrawn from the VGastro bar's Facebook page.

Under the act, anyone who attempts to insult, destroy or damage any religion can be punished by a maximum of two years in jail, with another two-year penalty for those who try to insult religion through the written word.

"Buddhists are unhappy because for them it is ugly to see the Buddha, who they worship, shown in that way," said Win Thein, of the Theravada Dhamma Network - a group affiliated with the Buddhist nationalist Ma Ba Tha movement.

Speaking to reporters after the closed hearing, Mr Blackwood's lawyer Mya Thwe said the men would have no right to appeal any guilty verdict.

"[But] none of them have confessed," he said, adding the next court date would be December 26.

The accused, who have been in custody since last week, are being held in Yangon's notorious Insein prison.

Trials in Myanmar's creaking judicial system can drag on for months.

Myanmar's legal system remains opaque despite reforms since the end of full junta rule in 2011 and it was unclear when the court was due to rule on the case.

Some of the bystanders outside the court wore T-shirts printed with the Buddhist nationalists' 969 logo.

Myanmar, also known as Burma, is wrestling with growing Buddhist nationalist sentiment driven by extremist monks, who have urged boycotts of Muslim shops and proposed a raft of deeply controversial laws to restrict religious freedom.

Their rise has accompanied several bouts of religious violence between Muslims and Buddhists, mainly in Rakhine State.

The VGastro bar, a tapas restaurant and nightclub in an upmarket neighbourhood of Yangon, was shut shortly after the poster came to light, despite a Facebook apology by management for their "ignorance" in using the Buddha's image.

AFP