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The 21-year-old, who has since apologized for the incident, was relieved of all team duties with immediate effect pending a full investigation, Red Bull said in a statement.
“As an organisation we condemn abuse of any kind and have a zero-tolerance policy to racist language or behaviour within our organisation,” it added.
Vips, who is racing in Formula 2 this season, admitted the language used was “entirely unacceptable” in a post on his personal Instagram account on Tuesday.
“I wish to unreservedly apologise for the offensive language used during a live gaming stream earlier today,” Vips wrote.
“This language is entirely unacceptable and does not portray the values and principles that I hold.
“I deeply regret my actions and this is not the example I wish to set. I will cooperate with the investigation fully.”
The Estonian currently races with the British-based Hitech GP team and sits seventh in the Formula 2 standings.
Earlier this year, he replaced Sergio Pérez to drive Red Bull’s F1 car in a practice session ahead of the Spanish Grand Prix.
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