The party, called Project X, has attracted attention after a publicity poster was circulated, declaring “no one goes back home a virgin”.
Film board head Ezekiel Mutua said the party was organised so people could make pornographic films.
The organisers have now cancelled the event following the social media storm.
They blamed journalists for labelling it a sex party and called “some media houses… narrow minded”, according to a statement quoted in several reports
It adds that the party was supposed to be a place “where young adults can meet up, socialise and have a good time”.
The raunchy publicity material showed half-naked women with the promise that it would be “one night to lose your mind”.
The Kenya Film Classification Board (KFCB) said there had been a rise of young people being blackmailed after being filmed having sex.
At a press conference in the capital, Nairobi, Mr Mutua said the party had been cancelled following “immense public pressure” from “Kenyans of goodwill”, police and politicians.
He called it a “decadent event” and said the “KFCB took up the matter after getting a tip-off that the party was to be used by unscrupulous business people to promote drugs, illicit sex and the making of pornographic films”.
The police are investigating whether the organisers were breaking the law.
The planned party has led to Project X trending on Twitter in Kenya, with many social media users wondering what was wrong with the event, though there has also been some criticism.
Kenya’s growing youthful population, and its exposure to a global youth culture through social media, is challenging some of the more traditional values in the country, the BBC’s Ruth Nesoba in Nairobi says.
Project X takes its name from a 2012 Hollywood film that showed a group of teenagers organising a party which gets out of control.