Pride of the Deise festival organisers said it is “disheartening” that Pride flags erected outside the council's offices in the city were burned overnight as gardaí confirmed they are investigating the incident.
“We hope that the LGBTQAI+ community of Waterford will stand together and will continue to be visible in the face of this hate,” the organisers said in a statement.
A garda spokesperson said An Garda Síochána "take hate crimes very seriously" and they are treating the incident as criminal damage.
Flags had just been erected last Friday at the local authority's buildings in the city and Dungarvan to mark Waterford's Pride of the Deise weekend, a celebration of the LGBT community.
However, flags outside the Menapia Building on The Mall were burned overnight and the council made the discovery after being alerted by security for a neighbouring premises.
Mayor of Waterford Cllr Damien Geoghegan, who had originally proposed flying the flags, said it was a "disgusting" and "disappointing" act.
"Really disappointed to hear that somebody of that mindset would take down pride flags and destroy them.
"It would be a rare occurrence but it goes to show why festivals like Pride matter in the first place because there are still people who view the LGBTQI community as legitimate targets of hate," he said.
It is the second year the city's council has raised the flag for Pride month and Mr Geoghegan hopes future officeholders will continue the practice "to show members of the gay community that they have allies".
Mr Geoghegan said he looking to have fresh Pride flags flown above the council's offices: "I certainly won't be deterred as mayor and will be looking to have the flags replaced immediately."
"It is my intention to replace those flags as a show of solidarity to the LGBTQI community," he said.
A Garda spokesman appealed for information from anyone that was on the Mall or Parnell Street area between 5am and 6am on Monday morning. An appeal was also made for dashcam footage from drivers in the area.
“An Garda Síochána takes hate crime seriously, and each and every hate crime reported to us is professionally investigated and victims supported during the criminal justice process,” the spokesman said.
Mr Geoghegan said: "I don't know the mindset of the people who would do this, it's certainly not representative of Waterford and I really think the vast majority of people would be disgusted by that."
The 'Pride of the Deise' festival took place primarily online over the weekend with events aimed at adults and teens in the community.