Kate and Gerry McCann's spokesman Clarence Mitchell told Sky News the picture, featured on the website VoucherDigg, should be removed immediately.
The holiday snap of Madeleine aged three, was taken hours before the youngster disappeared from a Portuguese apartment in 2007.
But it is now being used to advertise "£20 off: Great discount on holiday bookings".
When users click on it they are taken to a page featuring deals from lowcostholidays.com.
The advert promotes breaks in a self-catering family apartment in Albufeira, Algarve - not far from the Praia da Luz resort where Madeleine vanished five years ago.
Mr Mitchell, said: "The misuse of Madeleine's picture in this way is utterly appalling and frankly unforgivable.
"Kate and Gerry were horrified when they found out about it. It is offensive in the extreme.
"Whether it's a mistake or hacking it's an utter disgrace."
He added: "That is the last picture of Madeleine that was taken on the holiday in 2007 just before she was taken, and for someone to use it - as some sort of sick joke it would appear - advertising holidays to Portugal of all places, is just appalling. There is no excuse for it."
He added London law firm Carter-Ruck has been called in to demand the removal of the picture.
Lawrence Hunt, chief operating officer at lowcostholidays.com, said: "We have no contract with VoucherDigg to advertise our holidays and we are doing all that we can to contact the website and get the picture removed.
"We discovered this vile material yesterday and immediately broke all the links to our site and contacted our lawyers.
"We apologise for any distress this may have caused which is completely beyond our control and are disgusted by the use of this image."
VoucherDigg has not commented.