Paladino, who has received strong support from conservative-libertarian "tea party" activists, spoke at a synagogue in Brooklyn's Williamsburg section while trying to strike a contrast between himself and his Democratic rival, state Attorney General Andrew Cuomo.
In his remarks, he criticized Cuomo for marching in this summer's gay pride parade, saying "that's not how God created us and that's not the example that we should be showing our children."
He added that children who later in life choose to marry people of the opposite sex and raise families would be "much better off and much more successful."
"I don't want them to be brainwashed into thinking that homosexuality is an equally valid and successful option," he said.
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But he skipped one line in his prepared text "There is nothing to be proud of in being a dysfunctional homosexual."
That remark, which Paladino said was suggested by his "hosts at the synagogue," made its way into media reports about the event after a draft of the speech was circulated by the congregation, without first clearing it with the campaign, according to campaign manager Michael Caputo.
Appearing on CBS' "The Early Show" Monday, Paladino said local media owes him an apology for the erroneous reporting.
"I think I made a very, very clear statement. … The people at the Daily News and the [New York] Post that continue this pariah attitude that they've got to come and chase me for every darn thing, I think they owe me an apology at some point."
Adding to the uproar, eight alleged gang members in the vicious beating last week of two teen boys and a 30-year-old man. Authorities say anti-gay bias was the motive for the alleged attack.
Paladino said it wasn't his intention to add fuel to the fire of gay hatred.
"This thing was highlighted only because of the words that were on a written statement that I did not speak. I crossed them out. They were unacceptable to me and that's the only reason we are talking about it today because those words were given by someone to the press and the press, in their own pariah way, needed to write something … so that's why this thing gets like this."
But Paladino stood by the rest of his comments.
"I want to clearly define myself. I have of no reservations about gay people at all, none, except for one thing, their desire to get married. … I feel that marriage is only between a man and a woman. Very clearly, I wanted to state that.
"Now, in addition, I have a nephew and … I have people working for me who are gay. Never had a problem with any of them, never had a problem in any sense with their lifestyle and we've talked about it often. … I talk to them about the discrimination that they suffer and I'm sensitive to it.
He went on to say that homosexuality was "not an easy life."
"It's a very, very difficult life. Most of them don't choose it. … The discrimination that they suffer is very, very difficult and I'm totally sensitive to it.
A Cuomo campaign spokesman, Josh Vlasto, said Paladino's comments demonstrate "a stunning homophobia and a glaring disregard for basic equality."
It's hardly the first time Paladino has been at the center of controversy. The multimillionaire developer from Buffalo previously apologized for forwarding racist and sexist e-mails early on in his campaign to replace Democratic Gov. David Paterson
Recent polls have showed Cuomo with a big lead over Paladino in the governor's race. Several minor-party candidates also are seeking to replace Paterson, who took office after former Gov. Eliot Spitzer stepped down in a prostitution scandal but isn't seeking election to a full term.