Residents in Melbourne are outraged after a police station held a flag raising ceremony to commemorate the 70th anniversary of Communist rule in China.

A large crowd gathered at Box Hill station on Tuesday to remember how revolutionary leader Mao Zedong founded the People's Republic of China on October 1, 1949.

Anger has been stirred at the celebration marking China's annual National Day public holiday, in light of Beijing's crackdown on pro-democracy protesters in Hong Kong.

The station in Melbourne's east is also in rookie Liberal MP Gladys Liu's federal electorate of Chisholm, which has a higher-than-average Chinese population.

The Hong Kong-born backbencher's ties to groups linked to the Chinese Communist Party have already sparked an Australian Security Intelligence Organisation investigation.

A Chinese flag raising held in Melbourne has sparked outrage from furious residents

Ms Liu is now embroiled in a new controversy with locals expressing their displeasure on social media at the ceremony, which also featured an Australian flag.

'Would you mind letting us know why this was allowed? To play another country's national anthem and raising their flag in Australia? Is Box Hill a Chinese colony now?' one woman tweeted.

Another replied: 'Why is this even remotely okay? Who allowed the raising of a communist Chinese flag in an Australian police station?'

Resident Keith Wilkins described the ceremony as inappropriate.

'People are feeling quite uncomfortable,' he told the Whitehorse Leader.

'What's the purpose. It needs to be understood what we're trying to do.'

Police have since acknowledged residents' concerns regarding Tuesday's ceremony

Whitehorse city councillor Blair Barker questioned the decision to fly the flag.

'Doesn't matter where you might have come from, we love all people in Box Hill and it's a harmonious place,' he said on Facebook.

'Caution should be exercised in flying the flag of foreign regimes that do not share our democratic values and principles such as the rule of law; it is potentially divisive and offensive to many.'

He later described the ceremony as problematic, considering that China is an authoritarian state that stifles free expression.

The ceremony was held in the electorate of controversial federal MP Gladys Liu (pictured)

'My concern is that we're seen to be promoting a regime that doesn't support the democratic values and principles such as the rule of law, and people might associate our police service with the way the police services in that regime conduct themselves,' Cr Barker told 3AW radio broadcaster Neil Mitchell.

'I'd encourage them to be a bit more judicious about the sort of flags they try to fly.

'Chinese people are beautiful like all people, but it's people's concern with that foreign regime that matters.'

Victoria Police has since acknowledged concerns about the ceremony which was meant to honour Box Hill station's strong relationship with the local Chinese community and businesses.

Is Box Hill a Chinese colony now?' one woman tweeted after seeing footage from the event

'Victoria Police acknowledges the concerns about the use of the flag by some people within the community and the station will continue to assess the appropriateness of raising any flag at the police station,' a police spokesman told Daily Mail Australia.

'Box Hill Police Station acknowledges the significance of this flag to a particular portion of the community without seeking to cause prejudice or offence to others.

'Box Hill Police work closely with their local community and the raising of the flag, for one day, represents the commitment Box Hill police has in acknowledging what is an important day for many in their local area.'

Police confirmed the ceremony was attended by the local mayor, state and federal ministers but it's unknown whether Ms Liu was there.

Daily Mail Australia has contacted Ms Liu's office for further comment.

In Box Hill, more than a third of residents nominated Chinese ancestry in the 2016 Census.

Put another way, 35.4 per cent of people were of Chinese background, more than triple the 11 per cent who said they were Australian.

Last month, Ms Liu admitted she had links to Chinese Communist Party front groups.

Her office released a statement confirming she had a role with the Guangdong Overseas Exchange Association in 2011.

A day earlier, she had denied her connection with a range of Chinese groups during a disastrous interview with Sky News presenter Andrew Bolt.