First Minister Peter Robinson has branded the person responsible for erecting a Ku Klux Klan flag on a lamppost in east Belfast an "idiot".
Politicians branded the flag as sinister and not representative of the people of the east of the city.
A light blue ensign, featuring an Aryan eagle over a KKK symbol, appeared on a lamppost off Island Street in Ballymacarrett and was subsequently removed yesterday morning.
It was emblazoned with the words 'New Order Knights' and also 'Ku Klux Klan', the white supremacist group which originated in the US. The PSNI confirmed it is investigating the incident.
There has been a sharp increase in racist attacks in east and south Belfast over recent months, with the PSNI revealing its officers are investigating up to three hate crime incidents every day.
Police previously said the UVF has been orchestrating the attacks.
The DUP leader said it was "absolutely outrageous, how some local idiot puts up a flag and gets a reputation for the area".
"This does not represent the people of east Belfast, it doesn't represent the unionist or loyalist community," he added.
East Belfast MP Naomi Long said the KKK flag gave "an even more sinister edge" to the recent hate crime surge in the area.
Unionist parties also condemned it.
DUP MLA Robin Newton expressed his disgust.
"Across Northern Ireland there are many streets decorated for the celebratory period around the 12th of July," Mr Newton said.
"The erection of a Ku Klux Klan flag in east Belfast has no place as part of these celebrations, or anywhere in our society."
UUP MLA Michael Copeland said: "I welcome the fact that the flag has been swiftly taken down, but it should never have been put up in the first place.
"A defunct American racist organisation has absolutely no connection or affinity with the people of east Belfast."
Dr John Kyle of the PUP condemned the flag as "insulting and disgusting."
He said: "It is a shame that some people do not share and cherish the values of freedom and tolerance that are at the heart of the United Kingdom."
A TUV spokesman said the Ku Klux Klan has "nothing to do with unionism, loyalism or the Loyal Orders".
Sinn Fein councillor Niall O Donnghaile said: "This is a blatantly racist organisation and the flying of this flag is all the more sinister given the spate of recent racist attacks and intimidation against families."