The police have given former army sergeant Tony Watson, 41, of Doncaster Road, Barnsley, a final warning which now means he can face arrest and prosecution.
South Yorkshire Police said complaints from passers-by had to be taken seriously, particularly as there was a primary school nearby.
But Mr Watson says those who are easily offended should not look into his garden.
His collection of garden gnomes included a male flasher, one peeing in a bucket, another mooning, a fully exposed woman and another revealing her breasts.
However, to avoid arrest he has painted knickers and a bra on one of the female gnomes and panties on a male gnome.
Divorced father-of-two Mr Watson, who served in the Duke of Wellington's Regiment for 22 years, said: "The policeman said they would arrest me unless they were moved and I would have to explain to a court why I have these gnomes in my front garden.
"I was told the gnomes would be taken away there and then. He even turned up with a van for removal.
"The officer said they had received a complaint under the Public Order Act which basically accused me of indecency.
gnome_in_panties.jpg (22.05K)
Number of downloads: 31 "Rather than lose them I put the gnomes round the back of the house, and got a paintbrush out, touched them up and put them back on display in the front garden.
"I can't believe it. I have had buses pull up in front of the house and everybody who sees the gnomes creases up laughing.
"I bought the gnomes because they reflect my character and personality. I just saw them and wanted them for a laugh."
A South Yorkshire Police spokesman said they had received a number of complaints about the gnomes.
"Officers visited the man several weeks ago and warned him that we had received complaints," he said.
"However he did not take any action and officers revisited him on Sunday following a further complaint."
Mr Watson was told to remove the gnomes or he would be arrested under Section 5 of the Public Order Act 1986 which states that it is an offence to display something that is insulting or likely to cause distress, harassment or alarm.
He was not arrested because he took appropriate action, police added.

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