Singapore must ensure the rights of its gay citizens if it wants to keep its reputation as a global business hub, Human Rights Watch said Wednesday, after the country warned foreign firms not to sponsor LGBT events.

Earlier this month the conservative city-state warned Google, Facebook and Goldman Sachs not to interfere in its internal affairs after they and other multinational corporations sponsored an annual gay rights rally.

The New York-based rights watchdog said in an open letter to Home Affairs Minister K. Shanmugam that the admonition against the sponsors "encourages discrimination" against gays.

The group said the warning was a "threat to the fundamental rights of all Singaporeans, and is a stain on your country’s reputation as a welcome home for international business".

"Human Rights Watch urges you to swiftly reverse course, repudiate your statement, and end efforts to restrict LGBT (lesbian, gay, bisexual and transgender) Singaporeans in exercising their rights to freedom of expression, association and peaceful assembly, free from discrimination and intimidation," it said.

The annual gay rights rally known as Pink Dot was held in Singapore on June 4 and backed by multinational firms that also included Twitter, BP, Barclays and J.P. Morgan.

Singapore's home affairs ministry issued a statement three days later warning that it would "take steps to make it clear that foreign entities should not fund, support or influence such events".

"The Government's general position has always been that foreign entities should not interfere in our domestic issues, especially political issues or controversial social issues with political overtones," the ministry said.

"These are political, social or moral choices for Singaporeans to decide for ourselves. LGBT issues are one such example," it added.

In a later statement, the ministry said no action would be taken against this year's sponsors.

Singapore's leaders have had to maintain an uncomfortable balance between increasingly vocal conservatives and gay rights supporters.

In 2014, Singapore's top court upheld the law criminalising sex between men.

And, earlier this month, producers of a local staging of the musical Les Miserables were forced to cut a scene showing a kiss between two male actors because of public complaints.

In an interview with journalists last year, Singapore Prime Minister Lee Hsien Loong said the country was not ready to legalise same-sex marriage, but added that the local gay community was not harassed or discriminated against.