A bonfire close to the scene of the Bloody Sunday shootings has been virtually covered with flags and abusive placards about the soldier being prosecuted for murder on the day.
Parachute Regiment material was placed all over the pyre before it was scheduled to be lit on Thursday night in the Bogside estate.
A veteran paratrooper, known as Solider F, is facing prosecution for two murders and four attempted murders on Bloody Sunday.
Thirteen civil rights demonstrators were killed when British paratroopers opened fire on crowds in Derry in January 1972 in what was one of the most notorious incidents of the Troubles.
The case of Soldier F, which is due to reach a Derry courtroom next month, has become the subject of intense controversy in Northern Ireland and beyond.
Loyalists across the region have been using the Parachute Regiment symbol to show support for Soldier F.
The lighting of the bonfire comes days after a loyalist flute band was accused of insensitive behaviour after taking part in a loyal order parade through Derry on Saturday wearing uniforms carrying the regimental insignia and the letter “F”.
Police have sent prosecutors a report on the actions of Clyde Valley Flute Band, from Larne, to assess if members were guilty of provocative conduct.
A bonfire is lit as darkness falls on August 15 in Derry every year on the Feast of the Assmupmtion of Mary into heaven.
However, in recent times the fire, which is built by local youths, has become a source of contention and associated with anti-social behaviour.
Police monitored the final construction of the bonfire from a distance on Thursday, using cameras on high poles to capture scenes as hooded youths placed material about Solider F on the fire.
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