Can an LED be used in paralell of a free wheel diode?
Your circuit as drawn doesn't even make sense if you wanted to use D2 as a flyback diode because it's facing the wrong direction, and the R1 defeats the purpose of a flyback path.

But no. The biggest reason being that LED cannot withstand 12V in reverse.

Other reasons are more about LEDs not being optimal for the purpose with slow switching speeds, and high forward voltage drops.

EDIT: I think I misunderstood your question. You're not asking if you can use an LED as a flyback diode, right? You're just asking if you can have an indicator light in parallel with a coil and flyback diode? In which case, yes that works fine as long as your resistor is large enough to limit the current for the voltage being applied.