The Saint Hotel in Melbourne said women who hung their underwear above the bar on No Undie Sundie would receive A$50 ($39; £22) of drinks vouchers.
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Women who flashed underwear at hotel staff would also get free drinks.
The director of Victoria state's alcohol licensing authority, Sue Maclellan, said the event - which had been scheduled for this weekend - "looks like an inappropriate liquor promotion. We will be investigating with a view to banning it."
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