The social network told the BBC it had made a mistake and has now approved the image.
Australian feminist group Cherchez La Femme had expressed fury after Facebook rejected their advert for an event designed to promote body positivity.
Originally the social network told them the advert "depicts a body... in an undesirable manner".
While the event page was not taken down, the advert to promote it was not approved.
"Ads like these are not allowed since they make viewers feel bad about themselves," read the original response from Facebook's Ads Team, which the organisers shared as screenshots on their page.
It also suggested that an alternative image of someone "running or riding a bike" would be more appropriate.
"Our team processes millions of advertising images each week, so we occasionally make mistakes," said a spokesman.
"To be clear, the image complies with our advertising policies. We have now approved the image and apologise for any offence this caused."
Facebook's terms and conditions state that images used in advertising may not "show excessive amounts of skin or cleavage".
Jessamy Gleeson, one of the producers of the Melbourne-based "Feminism and Fat" event, told the BBC she was furious.
"They're not policing women's bodies when it comes to acceptable standards of beauty elsewhere," she said.
"I can see that they were attempting to try to tackle eating disorders - that makes sense - but at some point you have to consider that women of different weights exist on Facebook."
The group had contacted Tess Holliday's management for permission to use the image but had not received a reply, she said.