Father Paul Kalchik, the pastor of Resurrection Catholic Church in the city's Avondale neighborhood, burned the flag earlier this month, despite being told not to.
"Why should an archbishop tell a faithful group of holy people not to destroy a piece of sacrilegious art?" he said in an interview with the website Church Militant.
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The flag Kalchik burned once hung inside the sanctuary of the church. Kalchik called its burning an "exorcism."
Protestors called for Kalchik's removal after he burned the flag.
"To think that this hatred is being spread in our neighborhood is not acceptable, said 33rd Ward Ald. Deb Mell. "It is not ok to demonize a whole community and put out hatred rhetoric to make himself feel better."
"This is wrong, absolutely wrong," said Ebenezer Lutheran Church Rev. Emily Heitzman. "It's got to stop and it's hateful."
Rick Garcia, an LGBT activist and devout Catholic, praised Cardinal Blase Cupich's decision to remove Kalchik from the church.
"Our cardinal did two things. He stood with gay and lesbian people and he made sure that one of his priests gets the necessary help that he needs. My heart overflows for that."