Scores of properties are flying the new town flag in Petersfield after it was introduced earlier this year following a local competition.
However, under planning laws, flying the town flag is actually illegal without planning consent.
The gover
nment does not recognise town flags and deems them as commercial advertising.
Government guidelines state that the only flags permitted to be flown without consent are the Union flag, national flags such as the St George's flag, the European Union flag and the Hampshire county flag.
But East Hampshire District Council has moved to reassure residents that it won't be taking action, despite acknowledging the breach in planning regulations.
Council officials added, however, that action would be taken if the flag was becoming unsightly or posing a safety risk.
Chris Murray, head of planning services at the council, said: 'Certain types of flag, like national or county flags, are outside local authority planning control and do not require consent to be flown.
'But there is currently no provision for '"town" flags, so therefore the display of the Petersfield town flag falls under the discretion of planning control officers.
'Each case will, therefore, be considered on its merits, but unless the flag is clearly causing harm to visual amenity or highway safety then we do not intend to take any action.
'If any business or member of the public has purchased a flag and is unsure about the planning position they can contact the planning service for advice.'
>> Vote in our latest web poll.