The NSW government may consider banning a flag that has been adopted by Islamic terrorists in the Middle East.
Premier Mike Baird was commenting on reports that a Sydney mosque had sold a black Shahada flag at a fundraiser.
The flag has been used by Muslims for centuries but has recently been adopted by Islamic State (IS) militants in Iraq and Syria.
IS is listed as a terrorist organisation in Australia.
Mr Baird was asked if he wanted the flag banned in NSW.
"That's obviously something that we will have to consider and work with local community groups about," he told reporters in Sydney.
"But we can't have a position where you are seeing any activity that is promoting terrorism, supporting terrorism."
Mr Baird said he had a "zero tolerance" approach to any activity that incited terrorism.
The Markaz Imam Ahmad (MIA) mosque in Liverpool in Sydney's southwest, where the flag was auctioned, said the Shahada flag had been in existence for more than a thousand years, "long before any terrorist organisation misappropriated it for its own political goals".
The mosque rejected suggestions the flag's sale was connected to IS.
"We reject any attempts to tarnish the good reputation of our centre and pledge to stand firm against the current wave of Islamophobia," MIA head Sheikh Abu Adnan said in a statement.
"We also believe that scapegoating and fear mongering has the serious potential of radicalising disaffected youth."
But Mr Baird insisted his concerns over the flag weren't directed at the Islamic faith but at terrorist sympathisers who might use it.
"We obviously understand and appreciate and are very mindful of the tradition of Islam," he said.
"This in no way goes in any way, shape or form against that."
The Shahada flag contains the testimony of the Islamic creed, declaring belief in the oneness of God and the acceptance of Mohammed as God's prophet.
