Upon being televised, the Iceland team unveiled the flag much to the displeasure of the crowd.
When the home crowd saw the Palestine flag, a chorus of boos rang around as the broadcaster quickly switched to the hosts.
With the home crowd jeering the act, BBC commentator for the programme, Graham Norton quickly jokingly remarked that it “didn’t go down well in the hall”.
One Twitter user said: “So Iceland held up Palestine banners after their score was announced, imagine what their winning speech would’ve been!
“Can’t believe we’re never going to get to hear that.”
Another user said: “Iceland are the moral winners.
“Eurovision Pride flags though a lot of countries also had those trans pride flag and the absolute they also pulled out Palestine flags when getting just a huge number of points. “
The controversial move comes as the Eurovision Song Contest got underway amid protests earlier in the day.
Armed police surrounded the Expo Tel Aviv complex on Saturday night as clashes had broken in Jerusalem on Saturday.
More to follow…