Australian soccer's governing body has denied it ever intended to ban Melbourne Victory fans flying the Eureka flag at matches.
Football Federation Australia (FFA), which governs the national A-league, issued a statement saying the banning of the flag at matches was "unintended".
Fairfax newspapers reported that Melbourne fans were told they would be kicked out of matches if they flew the Eureka flag because it was considered a political symbol under the league's regulations.
Victory supporters have displayed the standard, first flown by rebel goldminers at the Eureka Stockade in Ballarat in 1854, since the club's inception.
But after Victory fans defiantly vowed to fly as many Eureka flags as possible, FFA chief executive Ben Buckley said the ban was unintended.
"It had been caught up in a wider review undertaken prior to the start of the A-League to ensure that national or political flags are not brought into games inappropriately," Mr Buckley said in the statement.
"In this instance, I believe it's a case of the interpretation of `political' going too far and the ban has been an unintended consequence of our spectator code of behaviour."
Victory spokesman Trent Jacobs said the club and its fans were happy with the FFA's decision.
"The right decision has been made," he told AAP.
But he said the FFA had told Victory it was banning the flag prior to the season's start in August.
"We were advised by the FFA earlier this season that it was to be banned and constituted a political flag," Mr Jacobs said.
"We at the time expressed our concern about that and to our knowledge it hadn't been looked at."
Mr Jacobs said the Eureka flag had been very symbolic for Victory supporters from the outset.
"And it's been for them representative of support and unity of the football club, it hasn't had any political connotations."
Melbourne man John Ireland, a descendant of one of those at the original Eureka Stockade battle, said he was happy for Victory fans to fly the flag.
He thought the FFA had folded under pressure.
"They've produced a lot of opposition and they're now backing down," Mr Ireland told AAP.
He said the Eureka Stockade, a battle on the Ballarat goldfields between gold diggers and authorities in 1854, had made the flag a symbol of a stand for human rights.
"I think that's what the flag has been used for ever since, it's a flag of defiance if you like."
But Mr Buckley warned Victory supporters flying the Eureka flag "not to take it as a sign that any disruptive or inappropriate behaviour is condoned".