The flags, some of which are overlooking the Bogside estate, were put up in the past 24 hours.
Thirteen people died when British paratroopers shot civil rights marchers in Derry in 1972.
The Saville Report, published in 2010, declared all the victims to be innocent and Prime Minister David Cameron apologised in the House of Commons.
Events are due to be held at the end of January to mark the 41st anniversary of the atrocity.
SDLP Foyle MP Mark Durkan told UTV the flags which were overlooking the Fountain area have now been removed, but said there may still be more in other areas.
"Whatever justification people might feel about flying other flags, displaying the flag of the parachute regiment in this city is deliberately offensive," he said,
"A provocative display like this can only cause distress and anxiety to the people of the Fountain as well as upset in the wider community. I hope that wiser community counsel will prevail and these emblems will be removed to avert the obvious dangers."
Sinn Féin MLA Raymond McCartney called for Unionist leaders to help have the flags removed.
He said: "Given the history of the Parachute Regiment in this city and the upcoming anniversary of Bloody Sunday the erection of Parachute Regiment flags is being seen as provocation in an effort to raise tensions in the Derry area.
"We now need to see leadership from within Unionism to ensure that these flags are taken down as those who have erected them obviously did so to create a reaction from within the Nationalist community."