The Canberra Antiques Centre in Fyshwick hosts a collection of Third Reich memorabilia which includes Iron Cross badges, flags and swastika-emblazoned daggers.

The collection attracted considerable interest from collectors looking for something unusual, antiques dealer Virgo Lentzkow said.

Mr Lentzkow, who owns the collection in the Fyshwick store, said Canberra had a large market for the items thanks to the presence of the Australian War Memorial.

He has been selling the controversial antiques since a trip to Europe three years ago, and said the relative rarity of German war memorabilia increased its value.

''When you make comparisons with Australian or American or any other war memorabilia, [the market] is comparably quite big,'' he said.

A military history buff who volunteers at the Australian War Memorial, Michael Spinapolice, said the items were highly desirable despite the stigma.

''It's one thing to have a flag on the wall and say 'Heil Hitler', but quite another to have one as a showpiece,'' he said.

But the president of the ACT Jewish Community, Anita Shroot, said the items were repugnant and distasteful. She said the store should consider removing the items from display. ''Legally, they're perfectly entitled to have them, the way the law stands,'' she said. ''But I think morally, and showing some sensitivity, the display should be removed. We have both [Holocaust] survivors and children of survivors in our community, so we would find it certainly distasteful.''

The collection includes a flag apparently flown on a battleship which fired some of the first volleys in 1939. Mr Lentzkow is asking $36,500 for the flag, which he described as a museum piece.

Displaying or selling Nazi memorabilia is banned in Germany, but Mr Lentzkow sources his items from contacts in the country.

He is left with little choice, as on-line auction sites like eBay prohibit the sale of Nazi memorabilia.

The Fyshwick store's proprietor, Doug Mulley, acknowledged the collection was ''pretty ghastly stuff'', and said he could understand that some people would be offended.

''I've only had one query about it, and that was from a woman last week,'' he said. ''It turned out she was the descendant of a Holocaust survivor, and I said, 'I'm really sorry if it offends you'... but it's highly collectable stuff'.''