Tropfest, the world’s biggest annual short film festival, is again mired in controversy, with this year’s winner accused of ridiculing gay and transgender people.

There was an immediate backlash on social media when West Australian filmmaker Matt Hardie’s romantic comedy Bamboozled was announced last night as the winner of the prestigious competition. In the film, Pete (played by Hardie) bumps into a man at a bus stop named Harry. The twist is that Harry used to be Pete’s ex-girlfriend, Helen, before having a sex change operation. The pair re-connect over drinks and wake up together the next morning, a decision Pete obviously regrets. The punchline is that Harry was never a woman: the encounter was an elaborate made-for-TV hoax engineered by embittered ex-girlfriend Helen.

Melody Moore, founder of the advocacy and support group Trans Health Australia, says the film has already caused distress in the transgender community.

“I’m flabbergasted, I think it’s disgusting,” Moore told Crikey. “It makes me question whether we will ever be accepted for who we are in society if we’re seen as freaks … It is a real insult and slur on trans people.

“It enforces the stereotype that we’re freaks; that there’s something wrong with us; that being trans is an embarrassing secret. It’s painful for trans people because we do get these reactions from people. It’s certainly not entertaining to us.”

Moore says the film is particularly disappointing because there has been a growing acceptance of transgender people in recent years.

Former Australian Medical Association president Kerryn Phelps says the film is “incredibly insensitive” and could be damaging to transgender people.

“I don’t believe everything has to be PC but this doesn’t pass the cringe test for me,” Phelps, a leading advocate for gay and lesbian rights, said. “The thing most concerning for me is that the emotional journey for trans people is often so excruciating and difficult that this film could and would be very damaging for a trans person to watch. I think it is trying to entertain but it is incredibly offensive to the emotional journey of trans people. It has the potential to cause damage to a vulnerable group in the community which deserves greater understanding.”

Hardie, who also took out the best actor award, won $10,000 cash, a Toyota car, a trip to Los Angeles and a Nikon camera. He defended the film this morning, telling the ABC he didn’t want to offend anyone:

“The punchline really is a comment on media and how the world may have homophobia, but the lead character, and what I was saying, he was completely willing to go with either gender, he was in love with the person.”

Phelps said: “I’m glad he is distancing himself from any intention to offend. That may not have been the intention but it certainly offends.”

Tammy Franks, South Australian Greens’ spokesperson on gender and sexuality, said the film was “mean and cruel”. “It was so many levels of wrong: whatever the joke was, it fell flat. I didn’t think it was funny or amusing or had anything to offer. I was surprised it was the winner. Obviously, the judges can make their decision but public opinion seems to be it was the wrong call.”

The previous Tropfest winner was accused of imitating a country music video — the third time in six years the winning film had been accused of plagiarism.