A sign urging a boycott of businesses in Castlederg is being treated by police as a hate crime.
The matter was reported to the PSNI by a DUP councillor.
The sign placed by an unnamed group calling for a boycott is said to be in response to the erection of Union flags in the Co Tyrone town in September for the annual Castlederg Young Loyalists Flute Band parade.
Despite efforts to have the flags removed in the run-up to Christmas, they have remained in place, heightening community tensions.
In a statement, police said they were aware of the sign and that the report “was being treated as a hate-motivated incident, and enquiries are ongoing regarding the circumstances surrounding the signage”.
SDLP MLA Daniel McCrossan said concerns about the flying of flags had been raised “on numerous occasions over the years” with the Department for Infrastructure being urged to work with the PSNI to reach a solution.
“While I understand people’s frustrations, targeting local businesses or religious events is totally unacceptable and only serves to heighten tensions around this issue,” the West Tyrone representative said.
“I would ask the people behind this sign to remove it and will continue working with all involved to see these flags taken down in the correct manner.”
DUP councillor Keith Kerrigan said the sign should be removed “immediately”.
“Boycotting does not work and I totally condemn this sign being placed in Castlederg and those who felt it appropriate to erect it,” he said.
“We need to support all our local businesses and business ratepayers no matter what religious background the owners hold.”
Castlederg Young Loyalists have been contacted for comment.