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The pint-sized singer broke off from his performance in a half-full theatre to blast the X Factor judge over the state of the music industry.
In a four-letter-strewn outburst, Brian also criticised LEONA LEWIS - who's heading for No1 with her song Bleeding Love.
Brian, 33, raved: "Simon Cowell is solely responsible for f***ing up music. I feel sorry for that Leona girl - she's a mug."
The outburst came as Brian thanked the thousand people who had turned up to the 2,000-seat Liverpool Empire to watch East 17's reunion show.
An audience member told ViP: "Brian didn't keep his feelings hidden, which I guess you have to respect him for.
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"But for him to criticise Simon, who is so successful in the industry at the moment, was playing with fire.
"And the swearing annoyed some of the parents with young children who walked out in protest."
East Londoner Brian proved they were not spur-of-the-moment comments by unveiling one of the band's new songs - containing lyrics blasting the music world.
Words included: "F*** the industry, f*** the enemy, A& R people don't know s***."
Brian dedicated the song, called F*** That, to ex-manager TOM WATKINS.
The pair famously fell out when Brian was kicked out of the band in 1997 for comments praising the drug ecstasy.
Brian performed with band-mates TERRY COLDWELL, 33, and JOHN HENDY, 36, who are working on a new album to be released next year.
Earlier this month the trio flew to Germany for talks with Universal over a new record deal. But fourth member TONY MORTIMER, 37, will not be involved.
He joined the group for the reunion but then fell out with Brian.
In the band's heyday they charted 18 Top 20 singles and four Top 10 albums. Terry told ViP last night: "Brian was just making the comments tongue in cheek. He is never one to hide what he thinks but he was just having a laugh - there really was no offence meant."
A spokesman for Cowell laughed off the rant last night.
He said: "ELTON JOHN used to say the same sort of thing but he has since changed his tune."
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