The book, entitled Little Red Riding Hood Eats the Wolf, is a collection of six short stories with explicit sexual references.
The mix-up was discovered by a teacher in the remote southern Chilean town of Rio Bueno.
The teacher alerted the authorities after he was approached by a young boy who told him about the book`s contents.
`Irreparable damage`
The book was written by Colombian author Pilar Quintana and published in Chile in 2012.
One of the chapters tells the story of a sexual encounters between a teacher and a female pupil.
Another one describes the rape of a 13-year-old girl.
"This book can cause irreparable damage to our students," said the mayor of Rio Bueno, Luis Reyes, who took the case to Chile`s education ministry this week.
"To describe in such a detailed manner the violation of an underage girl does not help in any way in the education process of young children", he said.
A Chilean government statement said the book "does not meet the appropriate pedagogical requirements to be included in the national curriculum".
The folk story of Little Red Riding Hood and the Big Bad Wolf dates back to the Middle Ages in Europe.
But its best-known version is that of the Brothers Grimm, Wilhelm and Jacob, first published in 1812.
More about:
