The prime minister has slammed Newfoundland and Labrador's premier for ordering all Canadian flags removed from provincial government buildings, condemning the move as "disrespectful."

Premier Danny Williams ordered the flags taken down on Thursday, in retaliation for an offer from the federal government on offshore royalties that he called a "slap in the face."

Later in the day, Prime Minister Paul Martin said the move insulted all Canadians.

"The premier's actions are disrespectful of our most treasured national symbol," Martin said in a statement. "The flag should not be used as a tool in partisan politics."

Newfoundland and Labrador and Nova Scotia have been pushing to retain 100 per cent of offshore energy revenues. Currently, Ottawa claws back 70 cents of every dollar through reduced equalization payments.

After talks with federal Finance Minister Ralph Goodale on Wednesday failed to produce a deal, Williams said the flags would be kept out of sight until Ottawa offers his province a fair settlement.

Williams, who had set a Christmas deadline for a new deal, insisted he has no intention of continuing to bargain with the federal government.

N.S. premier distances himself from Williams

Nova Scotia's Premier John Hamm took a more moderate tone, distancing himself from Williams's tactics and saying he will resume negotiations in January.

"I have different issues right now than he has. And I have to pursue my issues and I will in the most effective way that I can."

Goodale had offered a 16-year deal that he says gave the provinces 100 per cent of offshore energy revenues – adding up to as much as $3 billion over several years.

But Williams said Ottawa's actual proposal gave the province less than the full revenues.

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* Coverage from CBC Newfoundland

He also objected to a condition that required Newfoundland to eliminate its $700-million deficit in order to receive increased benefits from offshore revenues beyond eight years.

It isn't the first time flags have been used in a fight with Ottawa over oil. In 1982, Newfoundland flew them at half-mast to protest negotiations with the federal government over oil.