Suspended Top Gear presenter Jeremy Clarkson was not being racist when he used the word "pikey" on the show, the BBC Trust has ruled.
The decision has sparked condemnation from the Traveller Movement.
The presenter, whose fate is to be decided by BBC Scotland controller Ken MacQuarrie after a "fracas" with a producer, put up a placard with the words Pikey's Peak on the BBC2 series in February last year.
But the Trust's Editorial Standards Committee (ESC) concluded that the word had been used to mean "cheap", rather than as a term of racist or ethnic abuse.
The BBC Trust ruling comes after viewers complained that the Pikey's Peak sign was "grossly offensive and racist" to the "gypsy traveller community", whose children are subjected to the word as a term of abuse in schools.
In the episode, Clarkson and James May joked about co-presenter Richard Hammond's lack of style in a car. Clarkson was seen putting up the handmade placard on a wooden hut.
Programme makers said that the use of the sign was also a pun on the name of the US racecourse Pikes Peak.
The ESC said the word "had evolved into common parlance among a number of people to mean 'chavvy' or 'cheap' and, depending on the context, viewers would not necessarily associate it with the gypsy and traveller communities".
A spokesman for the Traveller Movement said: "The claim that it has evolved a new meaning and that most people do not realise it has any reference at all with gypsies and travellers is absolute rubbish.
"It is an absurd decision that flies in the face of the evidence we presented during the course of the 13-month-long complaint process."
Moving BBC3 online would make the corporation "more middle-aged, more middle-class and whiter", according to one of the men behind a bid to save it.
The BBC announced last year the channel, which was home to hits like Gavin And Stacey, would go online only in a bid to save money.
Production company bosses Jimmy Mulville and Jon Thoday said they would be happy to buy it and run it under a different name or turn it into a "statutory corporation" similar to Channel 4.
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