The Princess and son Freddie Windsor at a film premiere

She denied she told a group of neighbouring noisy diners to "go back to the colonies" and insisted she is not racist.

She was dining at Da Silvano on Sixth Avenue in May when, she said, a "misunderstanding" occurred between her and another party.

Her rebuttal came in an interview for Sunday's My Favourite Hymns on ITV1.

"The last thing I would do is to offend or to make a remark that would offend two people I don't know," she said.

"I am not rude - I think the bottom line is that. It is a question of manners, well, there we are, misunderstandings occur."

I was unaware, and I probably should have been aware, that "colonies" is a pejorative term in America Princess Michael of Kent

Princess Michael's husband is the Queen's cousin and the German-born Princess was in the US for her daughter Lady Gabriella Windsor's graduation from Brown University.

Princess Michael said she had politely asked the neighbouring table of "African American revellers" to be quiet so her party could "hear the menu".

When offered an alternative table in a quieter part of the restaurant she remarked she would be "ready to go back to the colonies" .

"Now, I was unaware, and I probably should have been aware, that "colonies" is a pejorative term in America," she said.

'Completely insulted'

"To call me racist - it's a knife through the heart because I really love these people."

Nicole Young, a fashion TV reporter and PR consultant, was one of the five diners approached by the Princess.

When she confronted the Princess about her "colonies" remark she said the message was "quite clear".

"I was so completely insulted, there was no possible way that I could walk away and let it go," she told GMTV.

"This is New York, this is 2004. It was completely inappropriate.