Yugraj Singh Mahil, the first Sikh to run for a place on Hamilton's city council, was pictured on the billboard with another candidate Anna Casey-Cox, Radio New Zealand reported.
Both are first time candidates in the city's east ward, standing as part of the Community Voice group.
Mahil said the campaign had been going well until he received the news that one of his billboards in the suburb of Hillcrest was graffitied with the word "ISIS".
Mahil said in his 17 years in Hamilton he had never faced this sort of behaviour.
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"I think this is due to the turban; that happens sometimes, people get confused, they think only Muslims wear turbans," he said.
However, with Hamilton's gurdwara the first to be established in New Zealand, he said, most people in the area were more aware.
"Sometimes these sort of things, I think teenagers or kids they do it, they don't have enough knowledge about the religions and they don't know the difference," he said.
She said it was one thing to deface a billboard with something like a moustache, but painting the name of the violent extremist group was sick and ignorant.
"This was a different kind of defacing of a billboard and it was just at a whole different level. And I think it's just somebody who's not even thinking. It's just someone who is relatively ignorant has done it," she said.
Mahil said his wife is now too scared to leave the house while his two daughters are also horrified.
"My daughter and my wife got really upset ... My wife is a little bit worried about going outside so we try to be safe and don't go out at night, but still I have to go out and want to give this my best shot," he was quoted as saying by the New Zealand Herald.