The Greens and the right-wing group behind the ads, Advance Australia, are considering legal options after the AEC announced on Monday a shift from a preliminary ruling last month that the ads targeting Mr Pocock were not misleading.

Advance Australia has described the AEC decision that the ad was "likely to mislead or deceive an elector in relation to the casting of a vote" as an "unbelievable backflip".

The faces of Mr Pocock and Ms Steggall were shown in the signs with their names (in a style similar to that used in electoral matter authorised by or on behalf of those candidates) and wearing clothing containing the official logo of the Australian Greens. The signage has appeared near pre-poll voting centres.

One of the main targets of the ads, found online, on trucks and on corflutes, ACT senate candidate David Pocock has written to the AEC requesting Advance Australia be prosecuted for what he regards as a "flagrant breach of Australian electoral law", while the AEC is considering whether to refer the matter to the Australian Federal Police.

Ms Steggall, the independent candidate for Warringah, wants a retraction to be sent to her Sydney electorate to "set things right".

"The damage has been done all over Warringah. It only seems fair that they issue a retraction and send it to the electorate to set things right," she said in a statement.

Earlier, the AEC announced it had ruled that the ads were "likely to mislead or deceive an elector in relation to the casting of a vote". It said Advance Australia had agreed not to further display the signage. It also said if the group tries to tweak the ads and display them again, it must run them past the AEC first with 48 hours' notice.

In response, Advance Australia said it had paused the "effective" ads while it took further advice in relation to mounting a legal challenge to the AEC's "unbelievable backflip" which amounts to "bullying and heavy-handed behaviour".

"The ads, which depict Steggall and Pocock revealing a Greens' T-Shirt, were considered completely legal by the AEC last month," Advance Australia's executive director Matthew Sheehan said in a statement.

"But, in an apparent unprecedented action and via correspondence threatening legal action, the AEC has said it has reversed its position.

"We make no apology for edgy and disruptive campaigns, but we have an unbroken record of playing by the rules and accepting the umpire's decision."

The Greens are also looking at options. It is Greens' branding which has been used without consent. The candidates in question are not endorsed by the Greens.

"We are currently considering our legal options, and are aware of some legal opinions that suggest the Greens could successfully sue for copyright infringement," a campaign spokesman said.

Mr Pocock wants the AEC to prosecute over the ads, citing dozens and dozens of Canberrans confused and angry about the ads.

"This behaviour from Advance Australia is corrosive for our democracy and underscores how critical it is that we have federal truth in political advertising laws, backed up by serious penalties, something I have been calling for over many years," Mr Pocock said.

"It says a lot about my opponents that they are relying on false and misleading advertising to try and scare people instead of presenting their own ideas for the future of our great city."

The maximum penalty for breaching section 329 of the Electoral Act is a fine of $22,200 or three years jail, or both, for an individual. For a body corporate, the maximum fine is $111,000.

The group behind the attack ads, Advance Australia, has been on a mission to be the conservative, hard-right answer to the progressive Get Up. It has links to at least three political allies of ACT Liberal Senator Zed Seselja.

Mr Pocock said the matter is cause for better truth in political advertising laws.

"It should not be up on voters to have to wade through the nonsense and lies come election time. It is something we can clean up. We just need the political will to do it," he said.