Aim We compared skeletal muscle mass and physical function between older adults with sarcopenia and those with sarcopenic obesity. Methods Body composition and physical and cognitive function were measured for 1283 community‐dwelling older adults. Participants responded to questionnaires about pain and exercise. The pure sarcopenia group (PS) included individuals with sarcopenia only. The sarcopenic obesity group (SO) included individuals with both sarcopenia and obesity. Groups were compared after adjusting for sex, age and height through propensity score matching. Results The PS and SO included 129 and 105 individuals, respectively. Comorbidities were more frequent in the SO (P < 0.001). The SO had higher upper limb muscle mass (P < 0.001), and had lower ratios of lower limb muscle mass to upper limb muscle mass (P < 0.001) and of lower limb muscle mass to weight (P < 0.001). The SO also had poorer grip power (P = 0.007), gait times (usual pace, P = 0.001; maximum speed, P = 0.001), Timed Up and Go test (P < 0.001), and time standing on one foot (P = 0.005) than the PS. The SO had a higher frequency of gonalgia (P = 0.013). After adjusting for covariates, comorbidities, upper limb muscle mass, lower limb muscle mass to upper limb muscle mass ratio, lower limb muscle mass to weight ratio, gait time, Timed Up and Go test, time standing on one foot, and gonalgia differed significantly between the PS and SO. Conclusions Sarcopenic obesity decreases the ratio of lower limb muscle mass to weight by increasing weight. It affects physical function in older Japanese adults with low weight. Decreased relative lower limb muscle mass is an important function‐limiting factor in sarcopenic obesity. Geriatr Gerontol Int 2017; ••: ••–••.