The Knitted Muscle Man is the main antagonist in the Season 7 episode Favorite Shirt, he is created after Mordecai and Rigby put Muscle Man's favorite shirt into a 3D knitting machine after ruining it. However one of his hairs on the shirt causes an error thus creating the evil Knitted Muscle Man monster.
The knitter scans and starts to put the shirt together, and it goes well until it stumbles on an error: a foreign object which is just Muscle Man's hair. It asks if they want to use all detected materials, and Rigby, who wants to hurry, says they don't have time for this and presses yes, much to HFG's dismay, who tried to pull him away. Rigby insists it's fine, trying to tell them they need to act on their instincts, but a shocked HFG and Mordecai point behind him - to a knitted-up Muscle Man figure.