And John Dallat said the flags were sending out a message that only one section of the community is welcome.
There was a proposal for flags to be removed at the end of the summer when the marching season finished.
But that now appears to have been ignored – with numbers increasing on approach roads to Limavady from Londonderry.
The East Derry SDLP MLA says this is hurting business because shoppers are being deterred from coming into the town for Christmas shopping.
Said Mr Dallat: “Unfortunately traders in Limavady are paying the price for these flags and I know so many people find them off-putting to the extent that they are staying away from the town.
“It isn’t just people coming into Limavady who are talking about them, it is people who are patients of the Western Trust who have been sent to Limavady for appointments.
“People have spoken to me about their shock at every lamp post bedecked with a flag which they say makes them feel like only one section of the community is welcome.”
During the summer there was uproar when a roundabout in Limaavdy was painted red, white and blue.
And the local St Mary’s Catholic Church was attacked with UDA graffiti in July.Tags: