The witness codenamed Person 35 from New Zealand in the Federal Court was questioned about his controversial outfit worn at the SAS makeshift bar called the Fat Lady's Arms.
Person 35 is appearing on behalf of Mr Roberts-Smith who is suing The Age, The Sydney Morning Herald and The Canberra Times for defamation.
The war veteran denies all reported claims he committed war crimes in Afghanistan including murder, and acts of bullying and domestic violence, while the mastheads are defending them as true.
Barrister Nicholas Owens SC on behalf of the newspapers asked the witness about why he chose to dress up as a KKK member.
Person 35 said he didn't want to pay for an outfit online and this was the "easiest costume to manufacture at short notice".
"I knew another person was coming as blackface and I thought it would be funny if I came as a Klansman."
He said it was a parody, to have a laugh, to make fun of the actual Klan itself.
"They're pretty pathetic and I was making a joke of it."
"Were you reprimanded?" Mr Owens asked.
"No I was not, I actually won the fancy dress competition," Person 35 said.
The former elite soldier was also questioned about a number of Instagram posts he had liked, including one with an image of a man labelled "Fairfax".
The post references "some f***wit in a suit using f***tard logic he learned getting his tonsils bruised by some lecturer's spotty d*** at their non-binary law school".
"This c*** will be one of the first to be held down and drowned in a muddy puddle for his fancy jacket," the post continues.
Person 35 said it wasn't referring to Mr Owens personally, but the entire proceedings, including all witnesses who appeared for the news outlets.
He said the posts were dark humour and should not be taken seriously.
To another online posting referencing rats and snitches, Person 35 said he believed previous witnesses on the "other side" had been lying, and found it extremely disturbing they spoke to the media and not the chain of command.
He agreed he "did not see what some of your witnesses have claimed to have seen", referring to the allegation Mr Roberts-Smith kicked a prisoner off a cliff.
"I know my friend Ben and I know he wouldn't do that."
Another point of amusement for Person 35 was his drawings of winged penises inside troop headquarters at Tarin Kowt, he said.
He said his parody of the winged dagger became his trademark art "for a laugh".
But he denied the suggestion he penned a winged penis kicking a prisoner off the side of a cliff, a drawing another soldier said he had seen after the allegation against Mr Roberts-Smith became known.
Person 35 testified that he saw plenty of "killboards" around the Australian army base including one in Mr Roberts-Smith's room.
On Thursday Person 35 confirmed Seven Network boss Kerry Stokes was paying for his legal fees, saying he did not trust free lawyers offered from the Australian Defence Force.
It follows his evidence about a key point of contention during a clearance of a Taliban compound dubbed Whiskey 108 in Uruzgan province in 2009.
Person 35 has backed Mr Roberts-Smith's testimony that no men were found inside a secret tunnel Person 35 says he crawled through.
The trial continues.
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