Artists involved in this year's Biennale of Sydney have threatened to pull out unless event organisers abandon a sponsorship deal with a company involved in offshore detention centres.

The move casts a cloud over the showcase event, the biggest on the nation's visual arts calendar.

The Biennale of Sydney, which starts on March 21, lists Transfield Holdings as a major sponsor.

Transfield Holdings is a minority shareholder in Transfield Services, which holds contracts with the Immigration Department to provide services at detention facilities at Nauru, such as management, maintenance and perimeter security

Transfield Services has also been in talks with the federal government to extend its services to Manus Island and take over welfare services, including education and recreation, at both sites.

Transfield Holdings and Transfield Services are partners in the Transfield Foundation, which supports the Biennale of Sydney.

Refugee advocates have been calling on artists and the public to boycott the event over Transfield's involvement.

In an open letter to the Biennale board, sent on Wednesday, 28 Australian and international artists called on the directors to abandon the funding arrangement with Transfield. There are some 90 artists taking part in the event.

In a separate statement, the artists said some were “reconsidering their participation” and others were “organising different forms of protest from within”.

Signatories to the letter include prominent British artist Martin Boyce, winner of the coveted Turner Prize.

Australian artists include Callum Morton, Deborah Kelly and Angelica Mesiti - a video artist who won the Art Gallery of NSW's Anne Landa Award last year.

The artists say mandatory detention contravenes Australia's human rights obligations and they object to “being funded by an arts organisation whose sponsor is profiting from the policy”.

The furore coincides with a call by Human Rights Commission for an independent inquiry into the conditions in Australia's offshore detention centres and follows clashes between security forces and asylum seekers on Manus Island that left one Iranian asylum seeker dead and 77 injured.

A spokesman for Transfield Services said “this is a matter for the Biennale and its board to discuss with artists”.

Transfield Holdings has a stake in Transfield Services and its executive director, Luca Belgiorno-Nettis, is the Biennale chairman. Transfield Holdings founded the Sydney Biennale in 1973.

Mr Belgiorno-Nettis said: “Many Australians struggle with the problems of managing the transit of refugees to this country; this is a global challenge. The Biennale of Sydney acts as an artistic platform for dialogue around issues such as this.”

A spokeswoman for the Biennale said the board would meet on Thursday to consider the letter.

Transfield Holdings has a long history of sponsorship in the arts and its philanthropy has been directed towards a number of the country's premier cultural institutions.

As well as the Biennale of Sydney, it has ongoing relationships with the Australian Chamber Orchestra, Walsh Bay Sculpture Walk, Sculpture by the Sea and the Museum of Contemporary Art.

Mr Belgiorno-Nettis, AM, is not only chairman of the Biennale of Sydney, but also chairs the Art Committees at the University of Technology, Sydney (UTS) and the University of Western Sydney (UWS), and is a member of the Australian International Cultural Committee.

His brother, Guido Belgiorno-Nettis, AM, who is also on the Transfield advisory board, is president of the Art Gallery of NSW.

The Biennale's website says the event, themed You Imagine What You Desire, shows that "powerful art is not divorced from the cultural conditions, political, social and climactic environments in which it is generated".

with John Saxby