A huge Nazi flag on the facade of a building has caused dismay in the southern French city of Nice, with some residents apparently unaware it was a prop for a World War II film.

Complete with vehicles with Nazi insignia, the set was for an adaptation of Joseph Joffo's book, "A Bag of Marbles", about two young boys on the run in Nazi-occupied France.

"It is distressing, it sends shivers down your spine," said Daniel, a tourist from the French city of Orleans who was born three years after the end of the war, during which France was occupied by Nazi Germany.

Like many passersby and tourists, Daniel came to take a picture of the flag which caused alarm when it was first appeared on Monday.

A French-American tourist took a photograph of the moment the flag was unfurled and sent it to a local newspaper, claiming there was nothing to explain to local people why the red flag emblazoned with a swastika was on the building.

"People didn't know if it was a hoax, for a film, or a provocation," he told Nice-Matin.

"So as soon as they saw two men on the roof who were unfurling the flag, the crowd started to shout at them. As it was in the middle of the antique market, it caused quite a scene."

Nice town hall later released a statement explaining that the film crew had been granted permission to use the imposing Palais des Rois Sardes -- which houses the offices of the regional authorities -- to stand in for the Hotel Excelsior, which SS commander Alois Brunner requisitioned as the headquarters of his round-up of French Jews to be sent to death camps.

And on Tuesday a large yellow signboard read "film set" and "historical reconstruction" to dispel any further confusion.

Others saw the humorous side.

Initially surprised when they saw the large flag from afar, German tourist Mathias and his son Tobias later sent pictures of it to their friends back home joking: "We are back!"

The film is directed by French-Canadian Christian Duguay.