The new, larger councils could end up drawing their own policies on the flying of flags as hopes of a post-Haass deal by the main Stormont parties fade.
Nationalist-controlled councils could have a 'no flags' policy, while unionist-controlled ones like the merged Castlereagh/Lisburn authority could display the Union flag all year round.
Environment Minister Mark H Durkan, whose portfolio includes local government, has made clear the new councils will have the right to make their own decisions, as Belfast did 16 months ago when it switched from year-round displays to designated days.
Alliance and UUP attempts to amend the local government legislation failed yesterday, as Sinn Fein triggered the 'petition of concern' mechanism requiring a majority among both unionists and nationalists.
Alliance's Anna Lo introduced a proposal which would have resulted in all councils following the same designated days policy adopted in Belfast after the highly controversial vote in December 2012.
"This is the compromise agreement that recognises Northern Ireland's position within the UK, while acknowledging that we live in a shared society," she said.
"Designated days is the recommendation of equality guidance and is the policy at Stormont and councils such as Lisburn. It is the only policy that will help deliver a shared future. It is important that these new councils are able to concentrate on delivering better public services, rather than spending their first meetings debating how often the Union flag is flown.
"We must agree to a common policy of designated days in this legislation rather than leave it up to individual councils," she added.
The UUP's amendment called for the Union flag to be flown 365 days a year at Belfast City Hall and on a minimum of designated days at the other councils.
Ulster Unionist Assembly member Tom Elliott said: "This would also ensure fairness for the ratepayers of councils with a Sinn Fein majority, who have faced years of the party trying to impose their flawed and belligerent ideology."
The SDLP's Colum Eastwood argued, however: "We need to park the issue of flags. (It has been widely agreed) the reform of public administration was not the vehicle for dealing with that. It has to be dealt with in a separate process.
"It would have been better had it been dealt with before Christmas, but we are where we are."