The piece, which shows a rhino mounting a Nissan Micra with a traffic cone on its bonnet, appeared in Charlton in south-east London yesterday.
But at around 7.45pm last night a man wearing a black balaclava spray-painted white letters over part of the work. The car and traffic cone were then removed overnight.
Witness Devan Vadukul told the BBC the man in a balaclava had "brazenly walked up and defaced the installation with a graffiti tag".
He added: "The whole incident took place within less than 30 seconds before he disappeared with another male accomplice further down the road." Another witness, Stephanie Lester, said the man "walked away from a jeering crowd".
The now-defaced rhino was the eighth new London piece by Banksy in eight days. This morning, a ninth animal artwork was revealed.
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