Capitol Records is pulling the plug on its AI rapper FN Meka, and calling the unconventional and controversial signing an insensitive move on their part — in retrospect, that is.

The label went public with Meka’s contract on August 12, but Tuesday it did a complete 180° … apologizing to the Black community for not thinking things all the way through.

Sources close to the situation tell TMZ Hip Hop … Factory New, the company that concocted FN Meka, was virtually blindsided by the news, learning of their shredded contract just moments before Capitol announced it was cutting ties.

We’re also told by label sources … some angry staffers blame Capitol’s lack of diversity for the deal getting a greenlight, in the first place. One source claims the label has very few senior-level Black executives running departments.

FN Meka — an artificial intelligence rapper with computer-generated lyrics — featured overly exaggerated African-American tropes … which triggered a major backlash.

Many fans and pundits took issue with the AI entertainer (or its creators) using the n-word, and romanticizing run-ins with police.

The virtual rapper’s debut single “Florida Water” single actually features Gunna, who is currently incarcerated.

We recently spoke to Krayzie Bone of Bone Thugs-n-Harmony about the situation … who felt the dawn of the AI rapper is not only inevitable, but ultimately bad for human rapper job security down the line.