Sainsbury's and Morrisons are displaying adverts for tobacco products in their stores which Trading Standards says are against the law.
Video screens and posters promote devices that deliver nicotine by heating tobacco rather than burning it.
The two supermarkets say they believe the laws banning tobacco advertising do not apply to the devices.
Heated tobacco is less harmful than cigarettes, but experts say it is probably more harmful than vapes, and less effective at helping smokers quit.
In June 2018, then-health minister Steve Brine wrote to the company that makes iQos, Philip Morris International (PMI), to say advertising for it was "prohibited" and to ask them to "desist from such promotion in the future".
Two months later, he wrote to thank them for "agreeing to comply with our request to stop advertising and promoting the iQos device".
PMI says it only agreed to suspend advertising, not stop.
A spokesperson said: "We maintain our view that communications regarding the iQos device at appropriate points of sale is lawful."
Japan Tobacco International (JTI), which makes Ploom, said the 2002 law defines a tobacco product as something that is "smoked, sniffed, sucked or chewed", and because heated tobacco products do not produce smoke, they aren't covered by that definition.
Morrisons cited the same argument. "On that basis, we are comfortable that it is legal for heated tobacco products to be advertised in store," it said.
Sainsbury's said the ads were "in line with current tobacco legislation".
Both supermarkets say they do not sell the devices to children.
PMI and JTI say their heated tobacco devices are only intended for existing nicotine and tobacco users.
Hazel Cheeseman, chief executive of Action on Smoking and Health, said supermarkets advertising these products was "disgraceful behaviour".
"[It] puts pressure on overstretched enforcement services and risks introducing children and young people to new tobacco products."
The government would not say whether it still thinks advertising heated tobacco is prohibited.
A spokesperson said: "This government's landmark Tobacco and Vapes Bill will enhance existing legislation, including on advertising, and put us on track for a smoke-free UK."
The forthcoming bill is expected to ban all advertising of nicotine and tobacco products including nicotine pouches and vapes.
The UK's biggest supermarket Tesco said it does not run tobacco ads, while a spokesperson for Asda said it doesn't advertise tobacco products "in order to comply with current legislation as we understand it".