DUP MLA Jim Wells has said Union and Northern Ireland flags erected atop a water tower in Rathfriland was "very tastefully done" and those involved have been admired for their "tenacity".
The flags were put up on the NI Water tower to mark the Co Down town hosting a Twelfth parade.
NI Water confirmed it had reported a break-in to the PSNI after the flags were put up without permission.
It is understood the outer wall of the facility was scaled and the strengthened lock to the tower's inner steel access door was cut open.
Specialist equipment was used during the break-in.
The flags are expected to be removed in the coming days.
Mr Wells, who attended the Twelfth parade in Rathfriland, told the Irish News: "I saw it and I thought that's very tastefully done, and of course the vast majority of people who live around the tower would be from the unionist community."
The South Down MLA said the flags were attached "without doing any damage", apart from a lock being "adjusted, put it that way, to get in through the tower".
"I have been in contact with the people who decorated the tower. There was no intent to cause any ill feeling to anyone," he added.
Mr Wells said the parade is only held in Rathfriland every eight years and that the flags were "just to mark a very momentous occasion".
"People admire the tenacity of the young people for doing it. I have assured the water service that this issue won't arise for another eight years," he added.
Mr Wells has lost the DUP whip and does not speak for the party.
Sinn Fein MP Chris Hazzard said: "The incident where flags were erected on a water tower owned by NI Water in Rathfriland after a break-in caused considerable anger in the local community.
"It is now the subject of a police investigation and that must be allowed to proceed unhindered.
"Comments by DUP MLA Jim Wells on this issue have been unbelievable.
"He has also indicated that he has spoken to those responsible so presumably knows who they are. Has he passed this information on to the PSNI who are investigating this crime?"
SDLP MLA Sinead Bradley said Mr Wells should provide whatever information he knows about the incident to police.
“It is astounding that the DUP MLA suggested the locks had been ‘adjusted’ as those responsible broke into the water tower in Rathfriland. Either you support the rule of law or you don’t. Jim needs to make up his mind," the South Down MLA
“I also note that Mr Wells claims to have spoken with those responsible. Given that a complaint has been made to police about this incident, the DUP should provide this information to the police to assist with an investigation."
The DUP has been approached for comment.