Unionist leaders have been urged to take action and remove a Parachute Regiment flag hoisted in the Waterside.
A number of complaints have been lodged over the flag, which was spotted in the Rossdowney Road area yesterday.
The move has been branded an act of provocation by Waterside Sinn Féin Councillor Christopher Jackson.
It is the latest in a series of incidents over recent years.
Soldiers from the The Parachute Regiment were responsible for the killing of 14 unarmed civilians in Derry on Bloody Sunday.
The British Regiment opened fire in the Bogside on January 30, 1972 during a civil rights march from Creggan which was prevented from reaching the city centre.
Colr. Jackson said: “I have received a number of complaints about Parachute Regiment flags erected in the Glendermott Road area.
“We had a similar number of incidents in Derry last year as well.
“Given the history of the Parachute Regiment in this city, the erection of these flags is being seen as provocation in an effort to raise tensions in the Waterside.”
Colr. Jackson said it was now time for Unionist representatives to intervene to help put a stop to such actions.
He said: “We now need to see leadership from within Unionism to ensure that such flags are taken down as those who have erected them obviously did so to create a reaction from within the Nationalist community.
“The people who erected these flags are only serving the interests of those opposed to the Peace Process and heightening community tensions in the city,” he added.
There have previously been similar flags erected in the Fountain and Drumahoe areas of the city back in 2013, and others in the Newbuildings area in 2014.
There were also Parachute Regiment flags erected in Limavady last year.
The move comes after some Eleventh Night bonfires in the North West earlier this week were topped with Irish Tricolours and other emblems, with election posters of Nationalist and Republican candidates also torched in some areas.
Relatives of those killed on Bloody Sunday have in previous years spoken out against the display of such emblems in the city.
Major General Robert Ford, who was Commander of Land Forces in Northern Ireland at the time of Bloody Sunday, issued an order for the 1st Battalion, Parachute Regiment (1 Para), should travel to Derry to round up those potentially involved in rioting in the city. The operation and the massacre that followed was the subject of the Widgery Inquiry and the more recently Saville Inquiry. Lord Saville’s findings prompted an apology from former British Prime Minister David Cameron.