A homophobic call to action from a senior Tanzanian politician has ended up costing the country $13.7 million, after Denmark said it would cut aid funding over the comments.

Tanzania's second-biggest donor made the move after the administrative chief of capital city Dodoma, Paul Makonda, urged citizens to "report" suspected gay people to the police.

Danish Development Minister Ulla Tornaes cited the "unacceptable homophobic statements" and Tanzania's increasingly questionable human rights record as she announced the decision on Twitter.

Although Tanzania's Government distanced itself from Mr Makonda's statement, there were fears of a crackdown against gay people in a country where authorities are known to break up events organised by people believed to be homosexuals.

At least 10 men were arrested in Zanzibar earlier this month for allegedly attending a gay marriage.

Ms Tornaes said the Danish Government was also considering diverting $8.3 million to NGOs and other partners instead of giving it to the Tanzanian Government directly. Denmark gave Tanzania $52 million in aid last year.

"Currently, about half of our cooperation goes through the Government," she said.

"I will look at changing that, so we don't work directly with a Government leading a politic that goes in the wrong direction on human rights issues. Read more via ABC