The band had been expected to play at the Kubana festival, held in the first week in August in Russia's southern Krasnodar region, also known as Kuban.
But their performance billed for Friday was cancelled.
"I spoke to the Krasnodar region authorities. Bloodhound Gang is packing their suitcases," Culture Minister Vladimir Medinsky said on Twitter.
"These idiots will not perform in Kuban."
Festival organiser Ilya Ostrovsky told gazeta.ru: "We're here to make friends or listen to music. We will not allow anyone to insult the inhabitants of any country."
Local media reports later said that Hasselhoff had been questioned by police.
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