“You would have said ‘hey have you seen that Meghan Markle? Well she’s my sister. Boing! The legs spring open. It’s amazing,” the radio shock jock said as Thomas laughed.
Before making comments about Thomas offering sexual services to the Queen, Kyle went on to ask whether he'd be sexually interested in Princess Beatrice and Princess Eugenie.
"What about one of those freckly cousins ... Eugenie or whatever its name was. Would you go there?" he said. "You know, the freckly cousins, the red-headed bloody things with the stupid hats. Would you go there?"
Thomas then said he'd "do anything for $100 an hour."
Since the segment aired, many angry listeners took to Twitter to express their disappointment, with one claiming his "disgraceful behaviour" should not be tolerated.
"He has no shame at all. I hope companies rethink whether they want to advertise on that garbage show, Absolutely disgraceful behaviour but it is not suprising, he has form," one Twitter user wrote.
"In my humble opinion, Kyle Sandilands is an absolute racist pig," another controversially commented.
KIIS FM producers have since edited the conversation before sharing the chat online, removing Kyle's comment about Meghan's "black mum".
A representative for the network has also defended his remarks, claiming the interview was "lighthearted" and "inoffensive".
"This was a cheeky and irreverent interview in the style that regular listeners of the show are accustomed to. When listening to this interview within the context of the show, it is clear this is a light-hearted and inoffensive chat."
The spokesperson added, "As online shows are edited to produce a ‘best of’ each day, it’s not uncommon for online versions of the show to be different to the live broadcast."