Mayor John Welsh of Redwood Meadows is worried the act of vandalism could hurt relations between the town and the Tsuu T'ina (SOO TEE'-nah) First Nation.
The flag, which was raised at the town office last year, was stolen from the Redwood Meadows administration office.
Welsh says there's concern that the flag was targeted in retaliation to the Idle No More protests by First Nations across Canada.
The Redwood Meadows townsite is on land leased from the Tsuu T’ina.
Town council and individual residents are offering a $500 reward for information leading to an arrest.
"We do not support this in any way, shape or form, not only as a council board, but as residents within the community," Welsh said.
"Some members of the community are actually stepping up, not only to add to the reward, but have started a petition demonstrating our disgust with the behaviour exhibited here."
Welsh said Redwood Meadows does not want to be seen as tied to anybody not supporting First Nations and would like the friendly relationship with the band to continue.
"We were in contact with the Tsuu T'ina immediately following this and just wanted to make sure that we acted with them in communicating what happened here."
Welsh noted the flag had special significance.
"It was a way of showing honour to the Tsuu T'ina and other First Nations that we have their flag," he said. "There was a ceremony in early October ... which had Tsuu T'ina elders and dignitaries. It was a very important event, so the symbolism tied to (the flag's) destruction is somewhat disconcerting."
The community has asked the RCMP and Tsuu T'ina police for extra foot patrols in the next little while "just in case this was something larger than just the act of one not particularly sane individual."