Vietnam has strongly protested against Australia's issuance of a coin with an image of the yellow flag of South Vietnam.

Vietnam said the coin defies positive trends in bilateral ties and urged Australia to halt its circulation.

Australia fought with the losing US-backed South during the Vietnam War, which ended with the nation unifying.

The limited edition two-dollar coin was issued to mark 50 years since Australia pulled out its forces from Vietnam.

The yellow flag in the coin design, contained in a ring, is based on ribbon colours awarded to Australian veterans.

"We regret and resolutely protest against the Royal Australian Mint's and Australia Post's releases and circulation of items containing the yellow flag with three stripes, the flag of a regime which is no longer in existence," said Pham Thu Hang, deputy spokesperson of Vietnam's foreign ministry.

The coin also features an image of the late Queen Elizabeth II on its obverse side, and a UH-1H helicopter on the reverse. More than 520 Australians were killed in Vietnam between 1962 and 1975.

Vietnam lodged the protest as it concluded a five-day holiday to remember the end of the war. The yellow flag is a sensitive issue for the country.

In January last year, Vietnam's national television station aired a football match between Vietnam and Australia with a 10-minute delay as some Australian fans brought yellow-striped flags to the stadium.

In July 2018, a Vietnamese court sentenced three women to four years in prison on charges of spreading anti-state propaganda after they held up yellow flags in public.

Vietnam appeared to have overreacted to the commemorative coins, said Nguyen Van Tuan, a former refugee from South Vietnam who now researches medicine at the University of New South Wales and University of Technology in Sydney.

He said it is common for some local governments in Australia to use the yellow flag since veterans from the former South Vietnam are entitled to benefits from the Australian government.

The yellow flag was also flown by so-called boat people like him who fled Vietnam by boat so that they would be recognised as refugees, he said.

"While the flag no longer represents any country, it remains a symbol of the Vietnamese community in Australia," he said.

The Royal Australian Mint said the design reflected the "colours of the ribbons of the service medals awarded to Australians who served in Vietnam, including the Vietnam Service medal, introduced in 1968".

It added the Australian government "does not recognise the flag of the former Republic of Vietnam".