Eight people in Ku Klux Klan uniform have been pictured parading outside a Muslim community hall.
The Police Service of Northern Ireland said it was treating the incident as a hate crime.
The group was pictured in Newtownards, County Down, near the Bangladesh Islamic Centre.
Dr Raied Al Wazzan, a Muslim leader, said it was the second Islamophobic crime at the centre in a matter of months. Meanwhile, he said some people were scared to leave their homes.
He told the BBC: “This is the second time it has been targeted.
“This is a very small Muslim community living and working around Newtownards. A few months ago, a pig’s head was placed at the door.
“This time, more people came. They dressed in KKK costume and they could have gone anywhere in Newtownards, anywhere in Northern Ireland, dressing in any uniform.
“But to go in front of an Islamic prayer room, it’s totally making people afraid, afraid to come out or even go there.”
He added: “I understand it’s Halloween, people are dressed in costumes. But to go there specifically wearing that costume in front of the Islamic centre is not acceptable.
“It’s similar to somebody wearing a Nazi uniform and going in front of a Jewish synagogue – that would be unacceptable as well.”
Urging anyone with information to get in touch with police, Insp Richard Murray said: "We received a report around 5pm Sunday about a group of people dressed as Ku Klux Klan members in the vicinity of Greenwell Street in the town on Saturday night.
"We are also aware of images that are circulating that show people dressed as Ku Klux Klan members.
"Our enquiries are ongoing, and we are treating this as a hate incident at this time.
"Hate crime, in all its forms, is totally unacceptable. It is the responsibility of each and every one of us to ensure that we live in a society where diversity is respected.”
