Federal police will investigate at least six reports of crime in relation to the presence of the Hezbollah flag by gatecrashers at a pro-Palestine rally in Melbourne at the weekend.
Victoria Police said "prohibited flags" and chants representing the militant group were seen being carried by a small group, who were not affiliated with organisers of the 600-person demonstration.
The Melbourne march was one of several organised across the country as part of a day of action for Gaza, as Israel's offensive on the strip creeps into Lebanon.
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It's understood framed pictures of the terrorist organisation's slain leader Hassan Nasrallah, who was killed by an Israeli air strike on Friday, were also carried by members of the group.
Hezbollah is considered a terrorist organisation by Australia, the US, the UK and the EU.
In a statement earlier today, the AFP said displaying a prohibited flag in isolation was not enough to charge an individual with a terrorism offence.
Since then, it has confirmed it will investigate Victoria Police's reports that the protestors potentially breached counter-terrorism legislation.
The police authority said it would approach news outlets for video footage of the protests to assist in its investigation.
If charged, the protestors could face a maximum penalty of 12 months' imprisonment.
Australian counter-terrorism laws state that publicly displaying a prohibited symbol is considered an offence in certain circumstances, including when the conduct incites others to offend or intimidate a person or use force or violence against a person or group based upon their race, religion or nationality.
Police officers can direct a person to remove a prohibited symbol from public display, but they do not have the power to remove the prohibited symbol themselves.
No arrests were made during the demonstration, according to Victoria Police.
"Victoria Police supports the right to protest peacefully and had a visible presence at the protest to ensure public safety," a Victoria Police spokesperson said.
"Appropriate referrals will be made to Australian Federal Police as the lead agency concerning prohibited symbols."
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Premier Jacinta Allan condemned the actions of the flag holders and said it was her expectation that Victoria Police and the AFP would pursue those responsible.
"There is absolutely no place for hate on our streets, antisemitism on our streets and no place for these prescribed terrorist organisations," Allan said.
"They should be held to account not just for displaying a prohibited symbol but for the grief, pain and anguish that is causing far too many in our community."
Allan said the government was working to strengthen anti-vilification powers in the state.
Shadow foreign affairs spokesman Simon Birmingham urged the government to come down hard on those involved in promoting Hezbollah.
"These are despicable and reprehensible acts to see people celebrating the life of a terrorist and promoting the values of a terrorist organisation," Birmingham said.
"[Police] investigations should be leading to criminal charges, using the laws that have been put in place to ban terrorist propaganda and symbols and slogans … as well as seeing visas cancelled.
"The government needs to not just show words in relation to this, but demonstrate actions and do so swiftly."
Treasurer Jim Chalmers today reiterated the government's intention to consider refusing and cancelling visas for "anyone who seeks to invite discord in Australia".