The watchdog upheld four complaints that challenged whether the ad, showing pigs roaming in a field and walking freely in a barn, was misleading.
The complainants said the ad gave the impression that the meat used in the sausages came from pigs bred and reared outdoors.
Tesco told the ASA it stood by the ad, claiming it depicted pigs both indoors and outdoors. It said a combination of standard trim and outdoor-bred trim was used in the sausages.
But the ASA said that in every scene the pigs were shown to be in a spacious and free environment.
"In that context, we considered that consumers were likely to interpret the ad meant pigs used to make the Butcher's Choice sausages were reared in an unrestricted environment and had access to outdoor pasture."
Tesco said it was "a bit baffled" by the ruling. "The farmer featured is a Tesco supplier and produces some of the pork featured in our ad," a spokesman said. "We genuinely don't see how the ASA can say an ad showing a genuine Tesco farmer can be misleading."