The man behind children's website Moshi Monsters said the High Court decision granting Lady Gaga an injunction against their Lady Goo Goo character sets "a dangerous precedent".
The character became an internet hit after a music video, The Moshi Dance, was put on YouTube and the firm had planned to release the song on iTunes.
But Monday's ruling prevents the firm from "promoting, advertising, selling, distributing or otherwise making available to the public The Moshi Dance or any musical work or video that purports to be performed by a character by the name of Lady Goo Goo, or that otherwise uses the name Lady Goo Goo or any variant thereon".
Michael Acton Smith who set up Mind Candy, the firm behind Moshi Monsters, tweeted: "The ruling could set a dangerous precedent in trademark law impacting tribute bands and parody songs. Not a good day for creatives."
He said the court's decision was "a huge disappointment", adding: "It's pretty obvious that kids will be able to tell the difference between the two characters. The shame is that millions of kids fell in love with Lady Goo Goo's debut single on YouTube and now won't be able to enjoy her musical exploits. It was all done in the name of fun and we would have thought that Lady Gaga could have seen the humour behind this parody."
The Moshi Monsters website, which allows children to adopt a virtual pet monster, has gained more than 50 million users since it was launched in 2008.