The giant green and gold flag, which shows a red-gloved golden kangaroo, has been draped over a balcony in the athletes' village.

The International Olympic Committee (IOC) has ordered the Australian Olympic Committee take down the flag because it was too commercial as it is a registered trademark.

Mike Tancred from the Australian Olympic Committee (AOC) said it was something Australian Olympic teams did at every Games.

"We put up a flag on the front of the accommodation section of the village where our athletes will be living," Mr Tancred told ABC Radio.

"We all do it, we do it every games.

"But someone from the IOC has told us the boxing kangaroo is too commercial because it's a registered trademark."

The flag is a registered trademark because it is used by the AOC to promote sport and fair play in schools.

The rights to the image were bought from Alan Bond, who licensed it after flying it from his America's Cup-winning yacht in 1983.

Australians are defying the IOC order and are keeping the flag flying.

Deputy Prime Minister Julia Gillard described the order to remove the flag as a "scandal".

"I think we want to see a lot of the boxing kangaroo, particularly now that we've had this ridiculous ruling," she said. "So, yes, boxing kangaroos everywhere."