The Good Vibes Festival, held last month, says it was demanding compensation because of Matty Healy's "use of abusive language, equipment damage, and indecent stage behaviour".
The 1975 have been threatened with legal action by the Malaysian festival Good Vibes.
The move comes following a speech made by the band's frontman Matty Healy about homosexuality and his kiss with bassist Ross MacDonald.
The statement was made onstage last month, apparently as a criticism of the Malaysian law which forbids homosexual acts.
Held in the country's capital Kuala Lumpur in July, the three-day event was axed after The 1975's performance.
Organisers demanding compensation said Healy’s "use of abusive language, equipment damage and indecent stage behaviour" had impacted them financially.
Future Sound Asia (FSA), who run the Good Vibes Festival have sent a letter to the band, asking them to "acknowledge their liability and compensate FSA for damages incurred". They warned they would take legal action in the UK if the band ignored the request.
In a statement, they poured scorn on the pop band’s behaviour, saying it “flagrantly breached local guidelines and Malaysian laws but also tarnished the reputation of the 10-year-old festival".
The FSA are also claiming “significant financial losses” and that The 1975 went against an agreement with the body saying they would respect local laws and regulations.
While onstage at the event, Healy told fans he almost didn’t play the festival as he didn’t "see the point of inviting The 1975 to a country and then telling us who we can have sex with".
He reportedly told the audience he only chose to go ahead with the performance as a thank you for their support, but added, "Unfortunately you don't get a set of loads of uplifting songs because I'm f****** furious and that's not fair on you, because you're not representative of your government because you are young people, and I'm sure a lot of you are gay and progressive and cool".
He finished his rant by kissing his bandmate.
Later, he told the crowd the group had been banned from the country and The 1975 went on to cancel two tour dates in Asia in Indonesia and Taiwan as a result.