Auckland mother Khamara Ashby was sickened after her children accidentally watched the character Momo - a scary doll's face holding a knife - which interrupts shows and threatens viewers.
Government departments have been told to shelve advertising with YouTube after predatory comments were discovered on videos of children posted to the internet giant.
1 News reported tonight the State Services Commission had asked government department chief executives to suspend advertising on the Google-owned video-sharing platform.
The NZ Transport Agency and Inland Revenue also pulled ads from YouTube today, the latter in response to questions from 1 News.
The broadcaster's owner, state-owned TVNZ, also won't advertise on YouTube.
Last week video blogger Matt Watson revealed videos featuring children talking to camera, performing gymnastics or playing with toys are often interpreted in inappropriate ways on YouTube.
The comments beneath the videos often feature timestamps referring to moments when the children are in compromised positions. Other comments openly use sexually explicit language in reference to the children.
The Herald reported this week Kiwi telco Spark was also understood to have pulled all its advertising activity from YouTube in response to evidence of unsavoury content targeted at children.
This move comes off a number of international reports exposing paedophilic content contained within the comments of videos that are targeted at minors.
While the videos themselves may not violate YouTube's content policies, the comments have often included inappropriate content loaded with sexual references and innuendo.
YouTube responded to the latest scandal, which has also seen advertising on the platform suspended by Disney, by purging tens of millions of comments from the site.
"Any content - including comments - that endangers minors is abhorrent and we have clear policies prohibiting this on YouTube," the company said earlier this week in a statement.
"We took immediate action by deleting accounts and channels, reporting illegal activity to authorities and disabling comments on tens of millions of videos that include minors.
"There's more to be done, and we continue to work to improve and catch abuse more quickly."
