The actor, 70, walked into the kitchen and pulled his trousers down, while wearing no underwear, as his shocked housemates looked on.
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Dee Kelly in particular was disturbed by the sight of a half naked Gary, and screamed "Someone sort that out!"
However Gary seemed unconcerned with his housemate's horror, and proceeded to sit down on a bar stall, still exposed.
Minutes later, Gary stood up and pulled his trousers back on but Dee was still visibly distressed.
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Strictly star James Jordan tried to explain to Gary what the problem was, saying: "If my wife was in here and saw your c_ck and b_lls out that wouldn't have been on.
"You have to wear underwear in this house. No lady should have to see that."
Gary was later called into the diary room to discuss with Big Brother his actions and why they were wrong.
He admitted: "I exposed myself. I know it was wrong and I apologise. But when my knee popped out it was a very scary moment for me.
"I understand the rules and regulations of Big Brother and I won't do it again."
During another argument in last night's show, Gary reduced Dee to tears and she threatened to quit.