Police were called after an auctioneer hoisted a NAZI flag in his window to promote a World War Two sale.
The flag, featuring a black swastika against the Austrian red-and-white triband, is going under the hammer on September 30.
Saturday Auction House in Blackminster, Evesham, Worcs., expect it to fetch around £500.
Auctioneer Trevor Williamson says the 3ft by 5ft flag was seized by British troops in World War Two and kept as a souvenir.
The flag was passed down through the soldier's family before a relative decided to sell it.
The upcoming auction has sparked controversy among locals after Mr Williamson put the flag in the shop window.
Johanna Anderson, 44, was one of those who saw the flag on her way to a nearby spinning and weaving shop last Saturday (2/9).
She said: “I pulled up on the car park, looked up and thought ‘wait, what?’
“Someone I know came over and I had to ask if she was seeing the same thing as me. It was overlooking the car park and pretty hard to miss.
“I have an elderly Jewish friend I meet there and was glad she wasn’t there that day as her family were killed in the holocaust.
“It turns out the flag had been there a week already - she had seen it and had reported it to the police.
“I don’t have family that were directly impacted but seeing it had a strong emotional impact on me.
“If it was in a museum it would be different but this was completely without context.”
The flag was removed on Monday (4/9) after a complaint was made to West Mercia Police.
Mr Williamson said: “We have been instructed to sell the flag as part of an estate sale in the usual manner.
“As auctioneers, we act as agents and do not uphold or subscribe to any political movement or regime.
"It’s regrettable that the action of temporarily displaying the flag has caused offence.
“We have replied to the five persons who have raised objection and advised that the flag has been removed.
"There are two sides to the rationale to consider here; On one hand and without argument, the Nazi flag is divisive but remains as a stark reminder of the darkest and most abhorrent period in human history, a period that should not be forgotten and never repeated.
"On the other, this artefact is of significant importance having been captured by British troops during World War Two, and in this context represents victory over fascism.
“We had put the flag in the window for a week and when police came to see us they advised us to remove it.
“They said they couldn’t force us to take it down but we decided it was best to. Context is everything in cases like this.”
A spokesperson for West Mercia Police said: “On Sunday, September 3 we received a report of a business on Blackminster Business Park in Evesham displaying an
offensive flag.
“Officers visited the business on Monday and after discussions with the owners the flag was removed.”
