Shetty, 31, is an award-winning Bollywood actress
The company said its sponsorship would be removed from the current series "with immediate effect".
But Channel 4 chief executive Andy Duncan said at a press conference it would not be pulling the programme.
Government Chief Whip Jacqui Smith has urged people not to watch Big Brother due to the "racist bullying".
'Shameful' behaviour
In the strongest condemnation of the show by a minister so far, she said the behaviour had been totally "unacceptable".
Ms Smith also attacked the programme-makers, saying that the editing had been wrong and that it was "shameful to make money and publicity out of that sort of thing".
Earlier, Mr Duncan said: "We cannot with certainty say that the comments directed at Shilpa have been racially motivated.
"This morning we have clarified with Shilpa, and unequivocally, she does not believe the treatment she has received is racially motivated.
"She thinks it is socially and culturally motivated," he added.
A record 30,000 complaints have been made over alleged racist remarks towards Shetty.
Three of Shetty's fellow housemates have been accused of racist behaviour, with Jade Goody, 25, receiving the brunt of public criticism.
On Wednesday's show, Shetty told housemate Cleo Rocos she feared she was being targeted because of her race. But the Bollywood star withdrew those claims on Thursday.
Goody joined the house with her mother and boyfriend Jack Tweed
"I don't feel there was any racial discrimination happening from Jade's end... I think that there are a lot of insecurities from her end but it's definitely not racial," Shetty said in the show's diary room.
Mr Duncan said they were constantly monitoring the show and that some of the contestants had been spoken to in the Big Brother diary room about how their comments might be perceived.
He said "it is unquestionably a good thing that the programme has raised these issues and provoked such a debate. These attitudes, however distasteful, do persist - we need to confront that truth."
Eviction
Shetty and Goody will go head-to-head in the forthcoming Celebrity Big Brother evictions on Friday, with Goody 1-5 favourite to be evicted.
HAVE YOUR SAY Shilpa Shetty is being victimised for being different, be it by colour, class or culture
Urmisha Rathod, Barkingside
Send us your comments How politicians got involved
An explosive row between Goody, who first found fame on the non-celebrity version of Big Brother, and the Bollywood actress was broadcast on Wednesday.
Goody told fellow contestants Lloyd and Jo O'Meara that "fake" Shetty needed "a day in the slums". She added: "Go in your community and go to all those people who look up to you and be real."
Former beauty queen Lloyd has also hit out at the Bollywood star, saying Shetty should just "go home", adding that "she can't even speak English properly".
Carphone Warehouse chief executive Charles Dunstone said in a statement: "Our concern has rapidly mounted about the broadcast behaviour of individuals within the Big Brother house."
The company has paid out about £3m in sponsorship so far this series.
"We had already made it clear to Channel 4 that were this to continue, we would have to consider our position."
"Nothing we saw last night gave us any comfort," he added.
'Clash of personalities'
The Perfume Shop chain has also decided to withdraw sales of Jade's perfume from its shelves following the controversy.
However, a spokeswoman for Goody has denied she is a racist.
"It is clear to all that Jade and Shilpa are rubbing each other up the wrong way, but what is going on is nothing more than a clash of personalities between two strong characters," she said.
Lloyd, 23, was briefly Miss Great Britain last year
"Jade will be mortified when she comes out to learn that her conduct is being interpreted as racist. Anyone who knows Jade knows that she is not a racist."
Goody's mother Jackiey Budden, who was also a contestant on the show but was evicted last week, said: "Jade has never been racist, she is mixed race herself and suffered racist abuse as a youngster."
The Carphone Warehouse decision follows media watchdog Ofcom's demand that Channel 4 must respond to complaints about "racist" comments.
"Clearly what is happening is very serious," said Ofcom's chief executive Ed Richards.
He said Ofcom would write to Channel 4 shortly but "in the meantime, it is Channel 4's responsibility to respond to very significant viewer concerns".
More than 30,000 complaints have been made so far to media regulator Ofcom and 3,000 directly to the Channel 4.
However, the explosion of media coverage has seen audience figures rise, with 3.5 million viewers tuning in on Monday, 4.5 million on Tuesday and 5.2 million on Wednesday - equalling the highest figure for this series since the live launch.
British television celebrity  of '''' fame has been diagnosed with .

Goody, 27, arrived in  on Tuesday night, having cut short her stay in the Indian version of Celebrity Big Brother, known as ''''. Goody was a controversial character in last year's Big Brother, sparking over 40,000 complaints to , the British broadcasting regulator after she allegedly made racist and defamatory remarks to fellow housemate and Indian celebrity Shilpa Shetty.

Goody has stated she agreed to take part on the Indian version of the show as an attempt to make up for her behaviour last year. Shetty is hosting the show, and has stated that her "prayers are with Jade."

Goody has been accused of making the announcement as a publicity stunt, but her spokesman has dismissed this as "ridiculous". Goody has stated she "will worry for her boys if she gets unwell". She said that she entered the house, despite undergoing medical tests, because she "can't wait around for the doctors" and that bills need paying.

Goody is said to have signed a contract worth 100,000 with ''Bigg Boss'' before her departure from the show. She is expected to undergo medical tests so doctors can see how far the cancer has spread.