||Prejudicial attitudes are widely seen between human groups, with significant consequences. Actions taken in light of prejudice result in discrimination, and can contribute to societal division and hostile behaviours. We define a new class of group, the prejudicial group, with membership based on a common prejudicial attitude towards the out-group. It is assumed that prejudice acts as a phenotypic tag, enabling groups to form and identify themselves on this basis. Using computational simulation, we study the evolution of prejudicial groups, where members interact through indirect reciprocity. We observe how cooperation and prejudice coevolve, with cooperation being directed in-group. We also consider the co-evolution of these variables when out-group interaction and global learning are immutable, emulating the possible pluralism of a society. Diversity through three factors is found to be influential, namely out-group interaction, out-group learning and number of sub-populations. Additionally populations with greater in-group interaction promote both cooperation and prejudice, while global rather than local learning promotes cooperation and reduces prejudice. The results also demonstrate that prejudice is not dependent on sophisticated human cognition and is easily manifested in simple agents with limited intelligence, having potential implications for future autonomous systems and human-machine interaction.