Sinn Fein councillor Christopher Jackson condemned the posters erected along a busy road in Newbuildings.
They read: “Loyalist Newbuildings, our forefathers fought for our freedom and rights.
“No border in the sea or we continue the fight.”
The councillor said: “This sets a very dangerous precedent.
“It’s outrageous that people have to drive past a poster of a masked loyalist gunman threatening violence on their way to work or school,” he added.
Unionists have spoken out against Protocol, which keeps the North of Ireland in the single market to avoid a land border.
They’ve said it separates the North of Ireland from the rest of the UK with an effective Irish Sea border.
The UK has threatened to suspend parts of the deal, which could cause implications for the relationship with Brussels.
Mr Jackson called for the PSNI to investigate who erected the posters and ensure they are removed immediately.
“Unionist leaders also need to step up and condemn these sinister posters and the threatening messages contained within them.
“This is a time for leadership,” he added.
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