Activists and charities attacked the party's decision to "cave in" to the company's complaints about posters that said bottle feeding led to a million babies in the Third World dying every year. The poster showed a photograph of an Indian mother holding twins, one of whom was bottle fed and later died of gastroenteritis.
Campaigners say Nestle is one of several big companies that try to boost their profits by pressuring mothers in developing countries into abandoning breast-feeding.
The children's organisation Unicef teamed up with the pressure group Baby Milk Action to distribute the posters and leaflets around the conference stands.
Nestle representatives, who had a stall at the conference, objected that the material was unfair and the organisers decided yesterday to remove it.
In the party's debate on overseas issues, Jane Thomas, of Brighton constituency Labour Party, told the conference that she was disgusted by the move to stifle free speech.
"We should not be taking money from any company like this," she said. "Let's not have Nestle at the Labour Party conference in 1999."
Amy Lansdown-Nassen, of Unicef, said that she had put the posters up all around the conference halls and fringe but organisers removed them.
"We were told that we were creating conflict," she said. "Well, we want the issue raised and it is unacceptable that a big, multimillion-pound business can get its way against tiny groups like Baby Milk Action."
A spokeswoman for Nestle rejected the claims that the company's milk products were dangerous and that it bullied mothers into bottle feeding. She said the poster broke conference rules about displaying publicity in appropriate areas.
"We are not trying to stifle free speech," she said. "One of the main purposes of being at the conference is to enable people to visit our stand and debate the issue with us."
Earlier, Clare Short, Secretary of State for International Development, announced that the Government was giving the African Development Bank an extra pounds 30m for debt relief.
The new development agenda was no longer about just aid to Third World nations, but about allowing them to work their way out of poverty, Ms Short said.