The Great British Bake Off judge was pictured in the grey ensemble with a red swastika armband, an Iron Cross and a badge featuring a white Nazi eagle.
He said the photograph was taken in 2003 when he was on his way to a themed party and he was dressed as a character from TV comedy ‘Allo ‘Allo.
He said: “I am absolutely devastated if this caused offence to anyone, the picture was taken 14 years ago en route to a comedy TV shows-themed New Year’s Eve party and a group of us dressed up as characters from the classic TV show ‘Allo ‘Allo.
In response to pictures which appeared in the Sun today, this is my statement: pic.twitter.com/HbM6N75ygN
— Paul Hollywood (@PaulHollywood) September 10, 2017
“Everyone who knows me, knows I am incredibly proud of the efforts of those, including my own grandfather, who fought against the Nazis during the war.”
Hollywood, 51, was smiling in the photo in a pub with a friend who was wearing a military uniform.
In an episode of the BBC show Who Do You Think You Are? broadcast in 2015, the star learned about the experiences of his grandfather Norman Harman during World War Two, when he served as an anti-aircraft gunner.